“Demand has outstripped the funding that’s available. The Department of Higher Education and Training (DHET) has had the fastest growing budget in government. So it may seem somewhat contradictory that we are still facing enormous sustainability challenges. However, government and the fiscus is really constrained and university funding from the state is unable to keep up with the growth in the system,” said Dr Thandi Lewin (right), Acting-Deputy Director General – University Branch at the DHET.

“The proportion of students that qualify for the National Student Financial Aid Scheme (NSFAS) has grown exponentially. It was bigger than our initial assumption in 2018 and grew to 56 percent of undergraduates in 2020. At the current moment, we are funding approximately 63 percent of undergraduate students in the university system,” she told delegates.

‘The “missing middle”, a term that has gained currency in the higher education sector, refers to those students who come from working class households that do not qualify for the National Student Finance Aid Scheme (NSFAS) while at the same time, they cannot afford higher education’ – https://www.sanews.gov.za/

Her views were echoed by Professor Gerald Ouma (left), Senior Director: Institutional Planning at the University of Pretoria: “On one hand, there’s a steep increase in state funding for fee free education but we’ve also seen that student numbers are increasing and we also have a significant number of students who are not supported by NSFAS funding, but who have a genuine need for support.

“The number of ‘missing middle’ students sits at 56.2 percent. This is a serious call to action for us; we need to find creative ways of managing this and invest in fundraising. The key point is that we are going to have to double our efforts when it comes to generating funds to support students, because there’s a real demand. This has a direct bearing on our sustainability and, more importantly, on our ability to produce graduates who are able to make a difference in society,” said Ouma.

This is clearly linked to childhood development and education.

Ouma presented some distressing statistics including the fact that 27 percent of children under the age of five in South Africa are stunted owing to poor nutrition; that only 69 percent of children aged between three and five access an early childhood development learning centre; that 40 percent of those who enter Grade 1 will drop out before reaching Grade 12 and that approximately 12 percent will access a university with only four percent achieving an undergraduate degree within six years of entry.

“So the way to address the inequalities is – in my view – not by targeting the top. We have to address the systemic issues that entrench these inequalities. The problem is there’s no money in this system. Unemployment levels are growing – money has to come from somewhere and where is it going to come from to do all these things that we’re talking about? On a practical level we are going to have to do trade-offs.”

Mr Hardy Maritz (right), Director: Group Finance at the University of Cape Town, looked at how institutions get funded and presented a compliance exercise using an example from UCT but one which would apply to most of this country’s institutions.

He referred to “council-controlled activities” which includes tuition and student housing which is funded by state and tuition fees. Then there are “designated activities” over which the university council has no influence over how these grants are spent.

Maritz explained: “If we receive money for a designated activity then we do it. However, there’s not much of sustainability in this area into which donations and endowments also fall. The problem is that this money is included in our financial statements and shows up on our balance sheets and income statements. It is why financial statements can be misleading when used to analyse sustainability. You’ll also see assets like land and buildings but we cannot sell these off to pay salaries or for students’ tuition.”

He continued: “Our budget for 2022 at this point suggests that R1.1 billion will be spent supporting UCT students in respect of various forms of financial aid. That is funded from a number of sources with NSFAS being the biggest one. We find money for the missing middle out of our own funding. Next year, we will spend about R45 million on that group of students.

“Balancing revenues (state funding, student fees and other income) with operational costs (staffing, financial aid and other costs) ensures financial sustainability. However, we need to think ahead and plan. What does sustainability mean over a period of time? Many institutions are reliant on what I call ‘the great benefactor’. You expect to receive money each year and you don’t really think about the longer term. What happens if the money doesn’t come or is decreased for any number of reasons. I think the state was always going to challenge funding but the pandemic has just accelerated this.”

Universities must plan for uncertainty and pursue 3rd stream income more purposefully

Maritz elucidated: “Thinking ahead must be embedded. With regard to state funding, plan for uncertainty as any recovery will take longer than you think. Explore avenues for core business aligned third stream revenues delinked from the state. I think we are well positioned as South African research institutions to play a big role in things like vaccines or electric vehicles. There are unique opportunities aligned to research and we need to look for them.

“We should practice conservative financial management; balancing this with retaining our strategic compass and a continued focus on financial sustainability, while remaining alert and responding in an agile manner to new opportunities, risks and key changes.”

Lewin agreed that universities need to explore other funding options: “The overall picture shows a significant reliance, and a growing one, on the state subsidy. When it comes to third stream income, some of the more advantaged and research-intensive institutions are generally able to attract more third stream income than others. However, all universities need to build their capacity to attract third stream income. We are under a serious and severe fiscal constraint at the moment, particularly as a result of CoViD.”

She continued: “We’ve addressed the issue of poor and working-class students in the fully subsidised model but we have failed to address a comprehensive student financial aid system. How do we address the different funding needs in the system for different groups of students, and adequately address those in some kind of a more comprehensive funding ecosystem? We’ve made some progress and are looking to have new agreements in place from 2023. It’s going to be essential for the long-term sustainability of the system. And we do need to look at alternative funding sources.

What is the private sector doing?

“We are never going to do this alone as government. Part of the analysis is what other funding is in the system and what is the private sector doing. Ultimately, we’re going to require a number of multiple different alternative sources of funding, as well as government support, in order to fully address the student funding challenges. The fiscus is under extreme pressure at the moment and we are likely to be in that pressurised environment for some time; institutions have to be aware of that.

“Infrastructure funding has grown significantly but again we are now seeing a budget decline and also a very clear sense that we need to be accountable for this funding that is being spent, and how quickly and efficiently it is spent.”

Both Maritz and Ouma focused on the importance of Technical Vocational Education and Training (TVET) colleges.

TVET colleges ought to be absorbing bigger student numbers

Ouma was emphatic. “We need to be talking about TVET colleges. It is an opportunity to absorb the demand for post-school education and an area we should grow. If you look at the higher education participation pyramid, 1.2 million are in universities and about 900 000 in TVET colleges in this country. It is the other way around in other parts of the world. We need to grow the quality of education at these colleges and make them more attractive to students while building capacity so that we can absorb a growing demand for TVET education.”

Said Maritz: “We have a perverse relationship with TVET institutions. We seem to think that students who graduate from these colleges are third rate citizens. They are not and I can’t emphasise that enough. South Africa needs skilled electricians and plumbers. As a priority, we need to help our students who are in high school realise that maybe a university is not where they should be, and they should be in a trade or something related.”

For all three, it is critical that South Africa improves its throughput rates (those who matriculate and graduate).

Explained Maritz: “If you don’t change trajectories in the school sector by the time you have reached Grade 4 or 5, you’ve lost the argument. So I think the other way that we start solving problems is improving throughput rates of both school and university. We’re spending more money and we’re graduating fewer students.”

Said Ouma: “As higher education institutions, we are susceptible to large economic and societal trends; we are social institutions and are embedded in the space and place and what happens around us affects us. Large shifts in subsidy funding increases the vulnerability of poor working-class families. There are growing demands for free higher education, but the economy is not growing enough for to provide sufficient resources.

“We have to navigate these fragmented funding streams and be able to tap into multiple funding sources. Investors look at an institution’s reputation. If we do not present ourselves as reliable, as being at the forefront of research, as providing a good quality education and as addressing societal concerns as engaged universities, it becomes difficult to attract investment funding.

“We need to find a way of pooling resources and working together in terms of collaborations; not just amongst ourselves but with the other communities and the public we interact with. Our systems need to be efficient,” he concluded.

A final word from Lewin: “Student debt in 2019 amounted to 42.4 percent of the total fee income received, which is substantial, and of course, more than 50 percent of that gross debt was not paid. The non-payment of fees is a major risk to the sustainability of universities and highlights the necessity for debt management at the university level and the need to find a lasting solution to support students across the system to pay their fees.

“Historically disadvantaged institutions are not financially well off and have not generated sufficient reserves to ensure that they are able to be sustainable in the long term and, as a result, are highly reliant on state funding. The DHET has established a special grant – the Sibusiso Bengu Development Programme (named after the first Minister of Education in South Africa’s Government of National Unity in 1994) – which will be launched during the current fiscal year and which will enable eight designated universities to receive additional funding to support their strategic priorities.”

Sustainable funding for universities is one of key focus areas of USAf’s Funding Strategy Group (FSG), chaired by Professor Tawana Kupe, Vice-Chancellor and Principal of the University of Pretoria. Professor Gerald Ouma was standing in for Professor Kupe, who was engaged elsewhere. Two other priority issues of the FSG that received dedicated attention during last week’s conference were Funding for Infrastructure Development and University Shared Services: Drivers, Benefits, Success Factors and Challenges. The FSG, alongside USAf’s four other strategy groups, conceptualised the agenda of this conference in line with the Groups’ priorities stipulated in USAf’s current five-year strategy.

Janine Greenleaf Walker is a contract writer for Universities South Africa.