State guaranteed loans could fund varsity fees

Monday, November 13, 2017

The Heher commission has recommended that all tertiary students in South Africa be given access to State guaranteed bank loans, which they would only pay back once they start earning a certain income.

The Commission of Inquiry into the feasibility of making higher education and training fee-free in South Africa has recommended that all students studying at both public and private universities and colleges -- regardless of their family background -- be funded through a cost-sharing model of government guaranteed Income Contingency Loans (ICL) sourced from commercial banks.

The commission, headed by Justice Jonathan Arthur Heher, has recommended that through this cost-sharing model, commercial banks issue government guaranteed loans to the students that are payable by the student upon graduation and attainment of a specific income threshold.

“Should the student fail to reach the required income threshold, government bares the secondary liability,” the report reads.

President Jacob Zuma on Monday released the report, which recommends that the existing National Students' Financial Aid Scheme (NSFAS) model be replaced by a new Income Contingency Loan System.

The full report can be found on Commission of Inquiry into Higher Education Report.pdf
Commission of Inquiry into Higher Education Report_Executive Summary_0.pdf.

Should government be opposed to this model, the commission recommends that government consider the “Ikusasa Student Financial Aid Programme”, an Income Contingency Loan Funding Model proposed by the Ministerial Task Team on Funding for Poor, Working Class and Missing Middle Students.

The commission further recommended that government consider the introduction of a university fee capping mechanism to avoid the “cancelling out” effect.

How it would work

The recommended ICL model would work as follows:

  • Repayment only begins when the student reaches a certain threshold income.
  • Payments only continue until such a time as the loan is paid off.
  • The repayment period could be set to a maximum period so as ensure that payment does not impact on retirement accumulation.
  • Students could be allowed to settle the loan more quickly should they be able to.
  • Those who emigrate could be required to pay off the loan before leaving.
  • Loan is made available to all students (private and public universities).
  • No means test.
  • The financing of every university student is achieved through a bank loan at a rate favourable to the student. Whether such financing should extend to the full cost of education will depend solely on the choice of the borrower and his need for such an extension.
  • Collection and recovery of the loan will be undertaken by SARS through its normal processes.
  • The State can guarantee the loan or, better still, purchase the loan, so that the student becomes a debtor in its books. Professor Fioramonti, in his model, proposed the inclusion of the banks as lenders to students, with a government guarantee, so as to cover the cost for the initial years.
  • No student is obliged to repay a loan unless and until his or her income reaches a specified level. At the lowest specified level, the interest rate is at its lowest but will increase in accordance with specified increases in income growth.
  • If the loan is not repaid within a specified number of years, the balance can be written off.
  • The State will repay each student loan to the bank at a given date (for example, five years from the first advance).

The Inter-Ministerial Committee on Higher Education Funding, led by the Minister in the Presidency Jeff Radebe, and the Presidential Fiscal Committee, whose lead Minister is the Minister of Finance, Malusi Gigaba, are processing the report.

President Zuma said he will make a pronouncement on the report once the Ministers have concluded their work.

“I have decided to release the report prior to the conclusion of our work in processing it so that the public can have an opportunity to study the report while we continue with the processing thereof.”

TVET and registration fees

The commission recommended that all students at TVET colleges should receive fully subsidized free education in the form of grants that cover their full cost of study and that no student should be partially funded.

The commission also recommended that application and registration fees be scrapped across the board.


The commission recommend that the participation of the National Student Financial Aid Scheme (NSFAS) in the funding of university students be replaced by the ICL system. 

NSFAS should be retained for the provision of the funding of all TVET students and TVET student support if such retention is considered necessary.

Increased spending on tertiary education

The commission recommended that government dig deeper to finance the higher education and training sector.

“The commission recommended that government increase block funding to the Post School Education and Training Sector (PSET) as a whole in line with increased costs for providing quality education and infrastructure needs.

“The commission recommended that government increase its expenditure on higher education and training to at least 1% of the GDP, in line with comparable economies.

“The commission further recommended that government pay particular attention to the Technical and Vocational Education and Training colleges as they cannot perform at their current funding levels,” President Zuma said.

Student accommodation

The commission found that there is a severe shortage of student accommodation across the higher education and training sector. The commission recommended that government adopt an affordable plan to develop more student accommodation and that historically disadvantaged institutions be prioritised.

The commission further recommend a public-private partnership approach when responding to the student accommodation challenge.

Online and blended learning

On the option of Online and Blended Learning, the commission recommended that government must further investigate the viability of “online and blended learning” as an alternative in addressing the funding and capacity challenges facing the current higher education and training sector.

Postgraduate students

The commission recommended that the NRF bursaries (based on merit, or other criteria as developed by the NRF) for postgraduate students be retained and expanded when possible.

The commission further recommended for postgraduate students to have access to a cost-sharing model of government guaranteed Income-Contingency Loans sourced from commercial banks (ICL).

Historic debt

It is recommended that students with debt, who have since graduated, be offered income-contingent loans as well. –