Tricky tasks for chair of student financial aid scheme

By placing a top former banker at the helm of South Africa’s National Student Financial Aid Scheme, or NSFAS, Higher Education and Training Minister Blade Nzimande signalled the need for radical changes to the way the scheme should work – and how it should be funded.

Those changes are now a national priority.

A major factor behind the #FeesMustFall protest movement that closed universities across the country in recent weeks, has been the underfunded scheme’s inability to provide loans or grants to sufficient numbers of poor students.

There were also allegations of corruption and inefficiency ahead of the appointment earlier this year of former FirstRand CEO Sizwe Nxasana to chair the NSFAS.

Risky business

Signs of a more ‘corporate’ approach to managing the fund emerged when, in a presentation at the Second National Higher Education Summit in Durban in October, Nxasana said the government-funded scheme was “like a bank” in the sense that it faced the same major risks.

But unlike a bank, these risks were not yet properly managed, he said.

“NSFAS is going to implement an enterprise risk management process which meets global financial services and public sector standards,” he told University World News in a follow-up email interview last week.

As head of FirstRand, Nxasana oversaw its elevation to the position of Africa’s largest bank in terms of earnings and market capitalisation, growing by 23% compound annual growth rate to R18.7 billion (US$1.4 billion) in June 2014 from R8.3 billion.

On his appointment to NSFAS, Nzimande reportedly described Nxasana as “perfectly placed” to reach out to the business sector as part of addressing the gap between available funds and demand.

The ministry’s principal policy instrument to fund poor students, NSFAS disburses loans and bursaries to 205,000 university students and 200,000 technical vocational education and training college students.

Although there has been a significant increase in funding to NSFAS this year (up from R8.3 billion in 2014), demand for funding from school-leavers is increasingly outstripping availability, with a concomitant growth in student frustration levels.

Asked about alternative revenue streams for NSFAS, Nxasana told University World News that the scheme was looking to build a “fundraising platform” and capacity to attract domestic and international funding that was lacking at present.

“There are potential sources of funding from non-governmental organisations, the private sector and private individuals, all of which could be both local and international. There are various fundraising instrument options which are being considered at the moment.”

Low recovery, slow payments

Improving the recovery of student loans is also a priority.

In the last financial year the scheme, which is currently almost entirely state-funded, only managed to recover R248 million (US$18 million) out of R6 billion in loans – an untenable situation given the rising demand for free higher education for poor students in the context of what seems to be an increasingly constrained national fiscus.

“As at the end of March 2015 the nominal value of the loan book was R21 billion and the fair value was R6.1 billion. The fair value should be much higher than R6.1 billion if the recoveries were higher than the current level,” said Nxasana.

In order to improve recoveries, NSFAS would have to improve various processes and systems, including contracting processes with students at the loan granting stage, the debtors management and collections processes and systems, database management and analytics capabilities, he said.

Moves to address the problem of late payments to institutions are also under way, with a shift towards direct NSFAS management of the allocation and disbursement of funding to students – a function previously performed by higher education institutions.

“The NSFAS claims that processing has already significantly improved. NSFAS has introduced a student-centred model whereby the allocation and disbursement of funding to students is managed directly by NSFAS against the old model where NSFAS relies on the universities.

“This has resulted in improved efficiencies in fund administration and this model is now being rolled out to more institutions,” Nxasana said.

Rebuilding trust, exploring options

But the scheme has also been tarnished by allegations of fraud and corruption in the allocation of aid to students – allegations that prompted Nzimande to order a forensic investigation at the end of 2014. Nxasana’s appointment followed in August this year.

Asked how the scheme planned to rebuild trust, in particular with regard to the public sector, which is frequently cited by most stakeholders as a potential source of increased funding for the sector, Nxasana said the NSFAS had to improve its stakeholder satisfaction “across the board”.

As well as the private sector, this included students, universities and colleges, government departments, and other agencies.

“This will involve, among others, improving the level and quality of service, engagement and accountability to these stakeholders as well as elevating internal processes and efficiencies,” he said.

Among the fundraising options being considered by NSFAS, Nxasana said, is the development of student accommodation as an “asset class”. This would relieve the scarce capital required from universities and colleges, which could be used for other priorities, he said.

The Department of Higher Education and Training had published norms and standards applicable to all public universities as well as privately owned accommodation accredited by universities.

“With the expected improvement in student accommodation provided by the private sector off-campus, it will be possible to develop a ‘student housing’ asset class in which local and international real estate developers and investors can invest to meet the current demand, which outstrips supply.”

Supply and demand question

Of course, funding students with little chance of securing employment is not good for NSFAS’s financial health, nor that of the national economy. Repayment of loans only kicks in once a student is employed and earning more than R30,000 per annum.

Acknowledging the need to address the “supply and demand equation” when it came to producing skills, Nxasana said “better alignment” of the strategies of various stakeholders was necessary in order to produce the scarce skills required to support South Africa’s National Development Plan and grow the economy.

Nxasana said NSFAS currently had “categories of funding” dedicated to scarce skills development, but it was small in comparison to NSFAS general funding.

On the issue of extending funding to lower middle class students – the ‘missing middle’ constituted by students from families with relatively higher incomes but for whom higher education is unaffordable – Nxasana said the NSFAS had submitted a report with recommendations to the department.

“I cannot comment on the proposed funding mechanism at this stage,” he said.