1. Lesedi Education Endowment Fund

2. Lesedi Education Endowment Fund
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Executive Summary
SA higher learning environment characterized by escalating costs, declining subsidies and inadequate funding solutions
Current state interventions are inadequate to address the underlying issues
Situation is critical and requires holistic examination to formulate a sustainable solution
2 critical questions need to be addressed in formulating a suitable solution
How big is the funding gap to be filled? Free for all or for some?
How do we fund the higher education funding gap?
We propose a multi-pronged solution drawing on state and corporate participation, but ultimately driven by the creation of the Lesedi Education Endowment Fund
The proposal has benefits for all stakeholders therefore everyone participates
Funding to be rolled out in phased approach, prioritizing students facing greatest affordability challenges
Success will be achieved through the creation and efficient administration of a system with the committed buy-in from state, students, corporate SA and society
Lesedi Education Endowment Fund

3. Lesedi Education Endowment Fund
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Agenda
Lesedi Education Endowment Fund
Review current South African higher education situation
Present our proposed solution and benefits to South Africa
What we ask of you

4. University enrolments Lesedi Education Endowment Fund
State funding for higher education has not kept pace with the cost of study and growth in student numbers
University enrolments
Total cost of study
Government subsidy
Lesedi Education Endowment Fund

5. University costs outstripped inflation from 2009 - 2015
Lesedi Education Endowment Fund
No increase in tertiary education fees, result of Fees Must Fall Protests in 2015
Source: Stats SA

6. Despite growing enrolments, the system has not proportionally increased black student participation
% white students with university access
% black students with university access
University enrolments
Lesedi Education Endowment Fund
Student enrolment 2000 –
2015 –
2030 – 1.6 million (NDP target)

7. NSFAS designed in 1997 as interim mechanism but has not been adapted to meet increasing fee burden
NSFAS funding not enough to cover fees
High burden on qualifying families
Lesedi Education Endowment Fund
Source: NSFAS recovery as quoted by Minister for Higher Education and Training Blade Nzimande

8. Lesedi Education Endowment Fund
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Current state interventions do not provide required level of financial support, therefore rejected by students
intervention
Challenges & concerns
2015: 0% fee increase
Does not provide a long-term solution to cost increases
2016: 8% cap on fee increase
Does not address overall affordability
Does not address self-funded costs (e.g. private accommodation, books)
Does not amend qualification criteria for access to funding
2017 – 2019: Additional R8B funding for NSFAS
Does not address operational inefficiencies of NSFAS
Does not amend qualification for full access to funding platform
Lesedi Education Endowment Fund
Longer term, holistic solutions are required to address the underlying challenges
Source: 2016 Medium Term Budget Policy Statement:

9. Lesedi Education Endowment Fund
Current funding gap of R25B needs to be filled to ensure higher education access to all students in the system
Lesedi Education Endowment Fund
Funding gap could grow to R90bn by 2025 if state and Corporates maintain current funding levels
Success would be a system that would ease the country’s educational funding burden now and into the future
Note: Total cost includes tuition in all institutes of higher learning including UNISA based on weighted average cost per student, accommodation on and off campus, books & catering allowances;
state subsidy assumed to remain at 38% of cost,

10. Lesedi Education Endowment Fund
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Agenda
Lesedi Education Endowment Fund
Review current South African higher education situation
Present our proposed solution and benefits to South Africa
What we ask of you?

11. Designing the solution: Lesedi Education Endowment Fund
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Designing the solution: Lesedi Education Endowment Fund
Understanding the system – How does its current design feed into inequality issues?
Free for all – Does an ‘ability to pay’ exist?
Free for some students – The rich paying their own way into social services gives them an incentive to create parallel societies
The rich are being funded by the poor
The black tax issues – Only black, poor students ever get presented with loan statements
The students are responsible for highlighting the problem – The solution crafted needs to talk to their issues and include them
Lesedi Education Endowment Fund

12. Lesedi Education Endowment Fund
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Lesedi Education Endowment Fund will be created from four major funding sources, funding initially classes 1 & 2
funding
uses
NSFAS
Lesedi Education Endowment Fund
Corporate infrastructure contributions R10bn every 5 years
Tier
1 & 2
students
Corporate
SDL
Education Levy
Tier
3 & 4
Tier 5
Annual contributions into endowment fund until fund self-sustaining through interest income
Growth in number of students covered driven by increase in class 1 & 2 growth (to a lesser extent class 3 & 4 growth) as student body becomes more representative of national demographics
Phased funding of students start with Class 1 & 2, subsequent increased coverage of Class 3 & 4 and lastly inclusion of Class 5 once fund self-sustaining
Note: Skills Development Levy (SDL)

13. Parallel societies created through privatising social goods
Free for all vs free for the poor? – Healthcare system
South African approach – the rich pay their own way into a parallel system
Tax incentives based on 2 questions
Are you a member of a medical aid?
Did your expenses exceed 7% of your taxable income?
If yes – you get a tax benefit
Such tax benefits end up in the profits of private medical aids
Lesedi Education Endowment Fund
Detail
Private Healthcare
Public healthcare
Population covered
7 million
48 million
% of population
13%
87%
Percentage of budget
55%
45%
Tax benefits
R50 bn +
NIL

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We propose a multi-pronged solution ultimately driven by creation of self-sustaining Lesedi Education Endowment Fund
Restore state subsidy to 50%
INCREASE Corporate SA support
Creation of education endowment fund
University as STAKEHOLDER
Current system:
Total cost of higher education is 40% subsidized by state
Corporates (third stream) contribute ~30% of total cost of higher education
Infrastructure (incl. residence) is responsibility of state and universities, and is facilitated through earmarked grants
Res can only support ~20% of students; private accommodation is expensive and ill-located
Inefficient NSFAS system is incapable of supporting ballooning enrolments
Outdated criteria means too few students eligible for support
Recovery of ~4% makes it a permanent cost to the state
Current structure has led to inflated university costs due to duplications of similar offerings across the system, e.g. research mandate applied to all universities
No clear connections between basic, college and university education structures, leading to high drop-out costs
Proposal:
Restore state subsidy to 50%, as it was in 2000
Creation of a Capital Infrastructure Fund that is fully supported by Corporate SA, in addition to maintaining current third stream contribution
Create centralised fund to consolidate & distribute all higher education contributions
Fund to have independent structure overseen by DHET
Initial investment to come from current NSFAS allocation and SETA contributions
Longer-term, fund will be self- sustained by graduates that exit the system through a graduate levy
Cluster universities into research (6-7), comprehensive (degrees and diplomas) and technology
Link basic, college and university education structures by making students attend college before migrating to comprehensive/ technology universities, and thereafter research universities
In the short term students studying critical (e.g. medicine) and strategic (e.g. engineering) skills to be allowed direct access to universities
Financial impact (p.a.):
Additional R 12B
Additional R 10B (on top of current third stream contribution of R 18B)
NSFAS allocation: R 12B
Skills Levy: ~R 30B
[Cost of drop-outs - TBC]
[Cost of duplicated costs -TBC]
Focus of this discussion

15. Lesedi Education Endowment Fund
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Proposed solution benefits all stakeholders; incentivizing all to participate
State
Corporate
Family
Graduates
What’s in it for me?
Transformation goals of the state likely to be achieved
Reduced dependency on social welfare initiatives/programmes
Reduced inequality gap, lower unemployment and poverty rates
More diverse and representative graduates joining the workforce
Tax benefits on contribution
Superior innovation and economic growth
Affordable education provided for family members
Improved quality of life for entire family, form higher earning potential
Access to affordable education provided to students
Social investment driven by graduates once they are earning an income
Mechanics
Initial redirection of NSFAS allocation; SETA contributions; and corporate philanthropy
Graduate levy will be funneld into the same fund
Students below a certain income level will be subsidised by state
Corporates contribute to an infrastructure fund
Family Income will be used to determine level of contribution
State contribution will be reduced the greater the family income level
Free education will be provided for families below threshold (<R300k p.a.)
Charged on all beneficiaries of the system; triggered as they become eligible for tax
Levy will be removed by corporates much like UIF
Amount will be captured in state fund to
Lesedi Education Endowment Fund

16. Lesedi Education Endowment Fund
FEES
FALL
The rollout – 2017 possibilities
2017 fee increases – the R400 million shortfall conversation and the 8% problem
Current students – evaluate current students under new qualification rules (R test)
New intake 2017 – subsidy funding across the board subject to the family contributions matrix (i.e. students below R per month do not pay)
Rollout of centralised application platform – enable students to link academic status (including ranking) and funding status in advance (2018 intake)
Lesedi Education Endowment Fund

17. Student population split
FEES
MUST
FALL
Student population split
Income level
Class
Participation rates
Number of students
Tuition cost – Average is R40 000
Average full cost of study – R80 000
0 – R
Class 1 –
Quintile 1 – 3
10%
10 000
R400m
R800m
Class 2 –
Quintile 4 – 5
15%
15 000
R600m
R1 200m
R300 001 – R
Class 3
20%
20 000
R1 600m
R450 001 – R
Class 4
25%
25 000
R1 000m (R1bn)
R2 000m
Above R
Class 5
30%
30 000
R1 200m (R1,2bn)
R2 400m
Total
R4 billion
R8 billion
Lesedi Education Endowment Fund

18. More students funded over time Lesedi Education Endowment Fund
Funding to be rolled out in phased approach, prioritizing students facing greatest affordability challenges
More students funded over time
Tier 1 and 2
Tier 3 and 4
Tier 5
Family income
<R300K
R300 – 600K
>R600K
% of students today
70%
(NSFAS covers 19% only)
30%
Funding level
Full and immediate
Based on family ability
None
Notes
Funding for regulation time plus 1 academic year
Excess covered through state subsidy
Potential to extend funding once endowment is sustainable
Lesedi Education Endowment Fund

19. Comparison – Lesedi Model vs alternatives
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Comparison – Lesedi Model vs alternatives
NSFAS
LESEDI
Design
Loan-based funding; ignores families above R
Recovered through direct repayments from R annual income
15-year lock-up
Only charges poor beneficiaries of education system – ignores those who benefit from state subsidy
Free education at student level – rolled out over a set period
Incorporates working class families by moving initial ceiling to R
Inclusive approach that gets state and corporate contribution to support family contributions
Forces the rich to pay through permanent contributions
Sustainability
Permanent cost to society – low recovery rates
Suboptimal design – fails to incorporate proper coverage
Exploitative in nature, inefficient execution
Example of black tax problem
Education levy at graduate level
Contribution aligned to ‘affordability’ level of R – in other words, graduates across the system start contributing when it makes sense to do so
Lesedi Education Endowment Fund

20. Lesedi Education Endowment Fund
FEES
FALL
Cost implications – how much can we do?
Assumptions – 2017 intake; projected for
Cohort size – (out of new intakes)
Cohort split –
Certificates – 17% (17 000)
Diplomas – 33% (33 000)
3-year degrees – 30% (30 000)
4-year degrees – 20% (20 000)
Average tuition cost – R – inflate at 8% to 2020
Average full cost of study – R (2016: R74 820) – inflate at 8% to 2020
Lesedi Education Endowment Fund

21. Lesedi Education Endowment Fund
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Agenda
Lesedi Education Endowment Fund
Review current South African higher education situation
Present our proposed solution and benefits to South Africa
What we ask of you

22. Contribution from all stakeholders is critical for success
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Contribution from all stakeholders is critical for success
Government and national treasury have to commit towards the process…
Corporate SA and civil society also have a role to play…
Restore state subsidy to 50% of education costs
Abolish NSFAS and redirect current NSFAS funds to Lesedi Fund
Set up structures to ensure the education endowment fund becomes self sustainable
Incorporate the corporate/education levy within the current tax structures
Increase the skills levy from 1% to 2 %
Corporate SA to
Contribute to the capital infrastructure fund
Ensure absorption of qualifying students into the working world
Civil Society to engage in driving policy change (i.e. use available channels or media)
Lesedi Education Endowment Fund
Success will be achieved through the creation and efficient administration of a system with the committed buy-in from state, students, corporate SA and society