1 Higher Education Student Funding

2 TOTAL HEAD COUNT ENROLMENTS: Graphs 1-3 summarise total head count enrolments in the sector. Some key points to note are these: Increases in 2003 compared to 2000: Total enrolments: +21% African enrolments: +23% White enrolments: +11% Female enrolments: +22%

3 GRAPH 1

4 GRAPH 2 Note: Average annual growth rates : African students: 7.1%, (b) coloured students: 11.8%, (c) Indian students: 9.1%, (d) white students: 1.8%

5 GRAPH 3

6 GRAPH 4

7. GRAPH 5

8 TEACHING INPUT UNITS AND BLOCK GRANT ALLOCATIONS The table below gives the block grant totals in the HE budget for the funding periods 2002/03 to 2006/07. It also shows what the annual increases were in nominal Rands in these totals. Graph 9 compares the increases that occurred in the teaching input unit total with increases in block grants in nominal and real Rands. Graph 10 shows what the effects of rapid growth were on the nominal and real Rand values of a teaching input unit.

9 GRAPH 6

10 GRAPH 7 Note: the teaching component = 65% of block grant total. Total above wasderived by dividing teaching component by teaching unit totals.

11 Total funds are available to the NSFAS Total Income by Source (Rands Millions)

12 Allocation to Higher Education Institutions The approved formula is based on two indices: (i) The disadvantaged student index (DSI), which is calculated for each institution using full-time equivalent (FTE) enrolled undergraduate students, disaggregated and differentially weighted by race, namely, African = 3, coloured = 2, Indian = 1, and white = 0. The rationale is that while all black students are disadvantaged, the degree of disadvantage varies. Although not weighted, white students are eligible for NSFAS funds. (ii)(ii) The full cost of study index (FCS), which is calculated for each institution based on the costs required to cover tuition and residence fees, including notional amounts for travel and books.

13 The allocation of NSFAS funds to different institutions between 1999 and 2003 shows that there was a significant redistribution of funds to the historically white institutions, whose share of the NSFAS allocations increased from 41% to 50%, i.e. by 9% between 1999 and The corresponding decrease in the historically black institutions was in the historically black universities. The historically black technikons share remained constant. Reason for the shift: changes in student enrolment patterns, in particular, African and coloured student enrolments in the historically white institutions grew by a larger proportion than in the historically black institution, which is illustrated in the graph. The changes in these enrolment shares mirror the changes in total NSFAS allocations by institutional category.

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15 Allocations to Students The NSFAS board sets each year the parameters within which awards can be made by institutions to individual students. These include the following:  a national means test, including the expected level of family contribution;

16 the minimum (R2 000 in 2004) and maximum (R in 2004) sizes of awards – the size of the award is determined by the full cost of study minus the expected family contribution and minus any other bursaries obtained by the student; the proportion of an award which can be converted to a bursary on account of good academic performance – this has been pegged at 40% since the inception of the NSFAS;

17 the interest to be charged on loans (7% in 2004), which is calculated at 2% above the annual rate of inflation. the conditions under which awards can be renewed in subsequent academic years; the income level after graduation at which the loan repayment kicks in – this was set at an annual salary of R in 2001.

18 Number of Awards Allocated The total number of awards made to students between 1999 and 2002 is summarised in the Table 5 below. The table shows that the total of students receiving NSFAS awards increased from in 1999 to in 2002, i.e. by (or 23%).

19 The ratio between NSFAS awards to students and the total African and coloured student enrolments in contact programmes, that is, the extent to which NSFAS awards are reaching needy students is illustrated in the graph below. This reflects the changes in enrolment patterns between different institutional categories discussed above.

20 The Means Test In 2003 a compulsory standardised means test was introduced to assess eligibility. Prior to this institutions were allowed to develop and use their own mean tests to assess eligibility. The purpose of the standardised means test is:

21  to identify the poorest students at an institution;  to calculate how much the student’s family should be expected to contribute towards her/his studies;  to determine the monetary value of the NSFAS award to individual students.

22 Size and Coverage of the Loan Key issue: the impact of the practice of not providing students with the maximum loan. This is done to ensure that all eligible students obtain some financial assistance as the institutional NSFAS allocations are not adequate to cover the full needs of all eligible students.

23 Full Cost of Study (FCS) and NSFAS Award Sizes by Institution, 2004

24 The impact of this practice is clear – it precludes students from completing their studies unless they or the instituition’s can make up the difference. The drop-out rate is on average 40%. It is not possible, as a result of poor data, to distinguish between students who drop-out because of financial reasons and those who fail. An investigation undertaken by the NSFAS suggests that financial constraints were the main reason for students dropping-out. The gap between the average NSFAS awards and the average full costs of study is indicative of inefficiencies. Two options could be considered:  the number of students awarded NSFAS loans should be reduced to ensure that all awardees obtain the maximum loan possible.  Injection of additional funds to reduce the gap.

25 Loan: Bursary Balance The NSFAS is based on the principle that a proportion of the annual loan should be converted to a bursary as an incentive to enhance academic performance - 40% of the annual loan could be converted to a bursary based on academic performance, i.e. the passing of all the subjects for which a student is registered.

26 The impact of changing the ratio on an individual student who registered in 2000 and graduated in 2003 (based on average award of R7090 and R 9255 respectively) is the following :  on the current 60:40 ratio, the loan repayment on graduation is R ;  55:45 = R ;  50:50 = R ;  45:55 = R18 084;  40:60 = R The difference for the individual between the current ratio and a 40:60 ratio is R8 038.

27 The impact of changing the ratio on the NSFAS based on the actual bursary written is as follows:  55:45 ratio = an additional R 189 million written off;  50:50 ratio = R 240 million written off;  45:55 ratio would result in an additional R 360 million written off;  40:60 ratio would result in an additional R 481 million written off.

28 Changing Interest Rates The loan portion of the NSFAS, like all loans, has to be repaid with interest. However, unlike commercial banks, which peg their interest rate to the prime rate, i.e. the rate at which the commercial banks borrow money, the NSFAS interest rate is equal to the rate of inflation plus 2%. This is informed by two factors: (i) link to the inflation rate ensures that the value of the loan is maintained over the period of repayment, thus enabling the re- injection of recovered funds to assist future students. (ii) additional 2% on the inflation rate promotes the long-term sustainability of the NSFAS through contributing to administration costs and the shortfalls that result from non-payment due to illness, death and unemployment.

29 The impact of not charging interest or, alternatively, not charging the additional 2%, on an individual student who registered in 2000 and graduated in 2003 is the following:  on the current interest charges, the loan repayment on graduation is R ;  it would be R if the additional 2% was not charged;  it would be R if no interest is charged at all.

30 The difference between the current interest charges and no interest charged is therefore R The impact of not changing interest or, alternatively, not charging the additional 2%, on the NSFAS is the following:  it would lose R 44 million if the additional 2% was not charged;  it would lose R 180 million if no interest was charged at all.

31 There is no evidence that the existing framework imposes an undue burden on students. The scale and successful recovery of loans suggests the contrary. Currently about 45% of loans are recovered = about R 210 million p.a.

32 The Allocation Formula The formula is based on a combination of two indices, the disadvantaged student index (DSI), which determines the volume of need, with “black students” serving as a proxy for need and the full cost of study index (FCS), which determines the funds required to cover the cost of study. However, both these indices contain significant anomalies, which impact on the allocation of funds to higher education institutions and require review and revision.

33 The DSI has two anomalies:  previously the definition of black student included non-South Africans, which distorted the allocation formula in favour institutions with large enrolments of non-South African students. This has been changed from this year and is no longer an issue.

34  the use of “black students” as a proxy for need assumes that all black students, irrespective of socio-economic status are needy. However, the socio-economic status of black students varies considerably across institutions. For example, at UCT 45% of black students are eligible for a maximum loan, while at Fort Hare it is 85%. Thus a black student at UCT should not be counted in the same way as a black student at Fort Hare. The FCS indices further distort the allocation formula in favour of the historically white institutions as the costs of study there are higher than in historically black institutions.

35 Changing the Allocation Formula In the short-to-medium term it would not be possible to revise the formula as:  better proxy for defining need has to be developed;  it is likely to result in a fairly significant redistribution of resources between different institutions, which if not managed could undermine not only the sustainability of the higher education system but also the policy goal of ensuring that access of the poor to all institutions is widened and improved.

36 In the short-term, the Department is considering options that would remove some of the obvious anomalies, which would result in some redistribution of resources between different institutions but not be on a scale, which would threaten their sustainability.

37 The Time Lag between Registration and the NSFAS Allocation The time lag between the start of the academic year and the release of the first tranche of the NSFAS allocation to institutions at the beginning of the fiscal year, which is 1 April, has had an adverse impact on the ability of students to register and meet their financial obligations to the registering institution.

38 This is due to the fact that students are expected to provide an upfront registration fee. The reason for this is many institutions experience severe cash-flow problems in the first quarter of the academic year. The cash-flow problem has been addressed. From this year the NSFAS is providing institutions with advance allocations to alleviate the registration bottleneck.

39 A further problem is that many institutions are unable to plan their annual intake and assess the demand on their NSFAS allocation until well into the first few weeks of the academic year because of the phenomenon of “walk-in” students. This refers to students who do not apply in the preceding year and turn-up on registration week. Higher education institutions need to develop recruitment and planning processes that would enable the institution to make placement offers, including NSFAS allocations, to students well in advance of the registration process. Consider initiating a campaign to inform and educate potential students and their families about the importance of applying for admission and financial aid, including responding to offers in a timely manner in line with institutional deadlines.

40 Student Fees and Mergers In the case of pipeline students institutions have kept the pre- existing fee structures, except for effecting normal (inflation adjusted) annual increments. In the case of new students two approaches have been adopted in the equalization of fee structures: Fee structures have been equalized with the institution subsidising students through a fee discount or additional financial aid. Equalization is being phased-in over a period of time to offset the difficulties that would result from an immediate move to equal structures.

41 National Plan Enrolment Targets Humanities / SET / Business and Commerce = 40 : 30: 30 NSFAS Enrolments = 35 : 35 : 30

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