“Higher education: Free for the poor not free for all” (my ST article)

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(The article below first appeared in the Sunday Times on the 16th of October 2016)

Across the country student protests have shut down universities with demands for “free higher education for all” prompting a Fees Commission and more recently a Presidential Task Team of Ministers to help solve the crisis. At the root of the issue is the righteous indignation about the fact that academically deserving students are excluded from university (either initially or subsequently) because they cannot pay their fees or living expenses. After overcoming countless barriers to simply get to university, these resilient students are then excluded simply because they are poor. This is unacceptable. I whole-heartedly agree with the underlying principle that no student should be excluded from university on financial grounds, which is unfortunately the status quo. Note that this is not the same as saying I think we should have “free higher education for all.” I think that subsidizing the richest 10% of South African households is unconscionable and unjustifiable, and “free education for everyone” is exactly that: a subsidy for the rich. Let me explain why.

Firstly we have to ask who makes it to university? A recent study published last month by my colleagues Dr Hendrik van Broekhuizen and Professor Servaas van der Berg shows that of 100 children that started school, only 14 will qualify for university, 12 will actually enrol and only 6 will get some kind of undergraduate qualification within 6 years. So when we speak about university we are really speaking about the 12% of students that actually make it to university. And who are the students that qualify? In a recent matric cohort, about 60% of those that qualified came from the wealthiest 30% of high schools (quintile 4 and 5), most of which charged fees. And who attends fee-charging schools? Largely those wealthier students whose parents can afford the fees. We can also look at this by race; about half (47%) of white matriculants go to university compared to less than a fifth of Black (17%) and Coloured (20%) matriculants.

This explains why blanket fee-free education is considered to be highly regressive or anti-poor. In contrast to a free-for-the-poor system which is pro-poor. The fact that the children from the wealthiest households are many times more likely to get in to university means that they would benefit disproportionately from a blanket fee-free system. It should thus come as no surprise that the World Bank (2014) and Van der Berg (2016) both estimate that as much as half (48%) of the university funding in South Africa accrues to the richest 10% of households. And two thirds (68%) accrues to the wealthiest 20% of households. As Van der Berg notes, this constitutes an “extreme bias towards spending on the rich if all students are equally subsidised.”

What is the point of raising revenue by additional taxes on the richest 20% only to give two thirds of that money straight back to them in the form of indirect subsidies to their children? No, instead we should use all the revenue raised from the additional taxes – however much that might be – to properly fund the poorest 80% of students who manage to qualify against all odds and who really need the funding.

The next question then becomes what the best modality is for ensuring that no student is excluded from university on financial grounds. While ideologically students may be demanding ‘free-education for all’, the existing economic environment of depressed economic growth and fiscal consolidation means that it is not easy to find an additional R60bn of recurrent expenditure. It is not a cop-out when Treasury says that it cannot simply ‘find’ an additional R60bn every year. To put this in perspective, the entire government budget of the Western Cape is R55bn. Health, housing, education, everything. We also need to grapple with the issue that additional money allocated to higher education is likely to crowd out other budget items like the progressive realisation of other constitutional imperatives such as universal health care (National Health Insurance) or universal housing.

Personally I am in favour of raising taxes (the skills tax and the capital gains tax) to fund poor and working class students who are currently financially excluded from university. Yet we need to go further than that to cover the “missing middle.” I think that a hybrid system of grants, subsidized loans and fees would lead to the largest reduction in financial exclusion, irrespective of how much is raised. The poorest students would receive ‘free’ education in the form of adequate grants that cover both fees and living expenses. The missing middle would qualify for government backed loans whose repayment was contingent on graduating and earning above a certain threshold (income-contingent loans), and the wealthy would pay fees, as they are currently doing. Those students who get government-backed loans would carry little financial risk, receive subsidized interest rates and capped loan repayments that would only revert in the event that they earn above a certain threshold. The leveraging effect of using the existing financial markets and banks means that, for example, R15bn of additional revenue could stand surety for loans of up to R60bn. So while it might only be possible to raise an additional R15bn – through a 1% rise in the Skills Levy for example -, one could ensure that no students are excluded on financial grounds. This is not politically sexy or glamorous, and doesn’t have a catchy hashtag (yet) but it does grapple with the budgetary realities we face as a country.

It is not at all clear to me why the different student movements are insisting on free education for everyone (including the rich) in spite of all the evidence that this would be fiscally irresponsible and socially regressive. Subsidizing the rich wastes precious tax income that could otherwise have supported more poor and working class students. Furthermore, if we can shift the conversation from an ideological (but unworkable) “Free Education For All” to a pragmatic “Funding For All” we will be taking a big step in the right direction.

4 responses to ““Higher education: Free for the poor not free for all” (my ST article)

  1. OSullivan, Kirstin

    Hi Nic

    Thank you for sharing this article and I just wanted to say thank you for all you are doing to improve education in this country.

    I’m praying that the protestors will see that there is no quick and easy solution to this problem, that the universities are not the establishments that can make these policy changes…and that calm will be restored at our universities.

    Best wishes,

    Kirstin O’Sullivan
    Education Programme Officer
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  2. Hi Nic

    The government-backed loans idea sounds interesting but possibly needs unpacking here for a layman’s audience (myself included). Am I understanding correctly that it is the leverage possibility that makes it a superior instrument to NSFAS since the payback conditions seem similar and since ultimate liability still rests with government? Is there an implicit assumption that banks are likely to be better at collecting and administering debt than government agencies and what would financing costs look like given an additional layer of administration and profit objectives?

    I haven’t been following education research closely for a while but I’d also love to hear your thoughts about whether the secondary school signals to both learners, parents and tertiary institutions are strong enough to match learners well to the most appropriate direction of studies. Are we channeling young people into the wrong degrees/diplomas/certificates because secondary school system a) does not provide enough curricular variety; and/or b) does not during or at the end of the secondary school cycle provide a signal (or information) nuanced enough to make decisions about which study or career path to follow? I’m all for more funding and better targeting but I also care a great deal about efficiency, which would be greatly compromised if we’re herding too many people into certain degree streams in the absence of coherent secondary school leaving signals.

    Regards
    Eldridge

    • Hi Eldridge, I agree with all of your points, especially the one about signals to school-leavers about where they should be going. Of course the biggest part of the ice-berg is the schooling system but right now the political spotlight is on higher education. There is current a move in the DBE to offer three-stream schools – vocational, technical and academic. But is yet to be operationalised.

  3. Great article Nic. 2 specific points: 1) eliminating corruption and mismanagement in state procurement would free up R60bn – increasing wealth and business taxes shpuld be last resorts; 2) what would be done to reduce dropout of the poorest 80%? Fees are not the only obstacle to graduatiob, and higher subsidies with ongoing high dropout imply higher potential waste of public funds, not so?

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