Graffiti on the walls of the University of the Witwatersrand in Johannesburg during the #FeesMustFall  protests. Picture: SOWETAN

Graffiti on the walls of the University of the Witwatersrand in Johannesburg during the #FeesMustFall protests. Picture: SOWETAN

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WHAT IT MEANS: ANC jumps the gun with fee-freeze call. 17 universities are financially insecure.

The ANC’s recommendation that the university fee freeze of 2016 be extended indefinitely fails to recognise the financial situation of universities — 17 of which are expected to run into the red even if their income rises in line with inflation next year.

It also fails to recognise that despite its popular appeal, the 2016 fee freeze made university cheaper for rich students while reducing universities’ ability to provide financial aid to poorer students because they were forced to slash budgets and run down their reserves to plug the shortfall.

It appears the ANC is caving in to populist pressure, given that its recommendation that "the principle of no-fee increase in universities should remain in place" came in response to the party’s election drubbing in big metros and on the eve of planned protests by university students.

SA’s record of sticking to its fiscal spending ceiling supports its investment-grade credit rating. Rating agencies are watching SA ahead of their December reviews for any signs that government may resort to unsustainable spending to win back voters.

"The risks to SA’s sovereign credit rating are clear, but a fee freeze won’t necessarily punish SA’s rating as long as it is not debt- funded or, worse, becomes another contingent liability that spirals over time," says Deutsche Bank economist Danelee Masia.

She believes there are sufficient funds at national treasury’s disposal to fund a 2017 fee freeze that costs roughly R2bn/year over three years, as was the case with the 2016 fee freeze.

Firstly, she says treasury may have under estimated SA’s terms of trade gains this year, so commodity-related revenue receipts may be slightly higher than expected. Secondly, the National Skills Fund has a surplus of R7.5bn over the medium term, resulting from last year’s adjustment to the skills development levy. Of this, R5.4bn remains unallocated. In addition , any unspent funds from sector education & training authorities (Setas) will go back into the fund this year.

Thirdly, treasury can tap into the R6bn contingency reserve for the current fiscal year. It grows to R10bn and R15bn in the other two fiscal years, respectively.

Also, since public expenditure is set to grow in real terms, slowing the overall pace of spending would free up funds. There is also the option of reprioritising within existing budgets as government did in order to find the extra R16bn it allocated to higher education in the current budget.

"So while it’s getting tougher each year to find new funding sources, there still appears to be adequate fat in the budget," says Masia.

"In my view this question has less to do with the funding and more to do with the risk it generates and the precedent that could be set for other sectors, as the user-pays principle applies to most government services."

On the other hand, money spent on higher education is an investment in the economy from which the whole country benefits, not just the student paying the fees.

It is one of the surest ways of achieving social mobility and addressing inequality. It should be of grave concern to everyone that university fees have become increasingly unaffordable due to the systematic public underfunding of higher education.

Relative to GDP, SA’s public spending on post-school education and training at 0.75% is lower than the OECD average of 1.59%. Even the average for middle-income countries in Africa hovers around 1%.

For the past 15 years, the government subsidy per student has declined in real terms while higher education inflation has increased by a few percentage points above consumer inflation each year. So universities’ subsidies have been falling behind their budgets. Most have raised student fees to make up the difference (see table).

Freezing university fees in 2016 was supposed to be a temporary concession granted to the #FeesMustFall student movement while SA sought a sustainable solution.

A commission of inquiry was established in January and was supposed to report in 10 months on the feasibility of making higher education and training free.

It has received more than 180 written submissions but started public hearings only on August 10. The commission’s deadline has been extended and it will now submit a preliminary report in November 2016 and a final report only in June 2017.

"This is a problem for the universities — it produces an environment that causes deep and sustained instability," says Prof Ahmed Bawa, CEO of Universities SA (USAf).

The university sector and government need to produce a sustainable funding framework prior to the 2017 intake to avoid a repeat of the destabilising unrest of 2015/2016, but Bawa says there’s little chance of achieving this before the year-end.

Prior to the ANC’s bombshell call for the fee freeze to be extended, the universities thought government had heard and understood their position: that any increase in university income for 2017 of below 8% was likely to compromise the financial health of as many as 17 universities, two-thirds of the sector.

Even the 6% increase recommended by the Council for Higher Education would push these universities into the red.

USAf estimates that a fee freeze in 2017 would cost another R2bn-R2.5bn/year for three years. If treasury were again unable to make up the full loss to universities, all would be "seriously affected" though some would be able to draw on their reserves to operate for a few months, says Bawa.

Higher education minister Blade Nzimande, USAf and the University Council Chairs Forum have agreed to create a multi-stakeholder forum to find, by the end of August, a joint approach on how to fully fund an increase of 8%. It could come from various sources including the state subsidy, private funding and student fees.

Among the longer-term suggestions being made to the fees commission are that SA tie the repayment of student loans to the tax system, as in the UK, so that students start to repay their loans only once their earnings exceed a certain amount.

It would also help if the National Student Financial Aid Scheme would professionalise loan recoveries, which have run at an average of just 10% over the past 15 years.

Another recommendation is that universities adopt a sliding-fees scale, as in Italy, where students’ family income dictates the fees charged. However, it seems unrealistic to expect universities to test the resources of every student given that household assets are as important as income in determining whether a prospective student might alternatively qualify for a student loan.

Wits University has suggested making better use of financial instruments like a privately managed asset management fund or a Special Purpose Entity (SPE).

It shows that if, for example, 15 universities each contributed R5m then the SPE would receive R75m/year and be able to issue R750m in bonds to companies, donor agencies and the like.

These are just some of the options SA could explore. The real test will be whether the ANC government shows a willingness to act on the commission’s recommendations when they are finally delivered or continues to opt for short-term, populist solutions.

Over the weekend, the presidency said it would only make an announcement on a potential fee freeze once consultation within government and with the university sector had been completed.