Varsities have fixed costs – any cuts in income will harm staffing ratios, research

South Africa invests 2.7% of its total education budget in higher education, according to the estimates of national expenditure for 2016.

Although funding to the sector has increased year by year, the sector has grown and funding for full-time students has been in steady decline.

Universities South Africa (Usaf), the representative association of all 26 public universities, has been trying to persuade policymakers in the government for years that the university sector needs to be adequately funded if it is to be effective and globally competitive.

Universities’ budgets come from three main sources:

  • An annual state subsidy disbursed in the form of teaching and research grants, based on the number of full-time equivalent students per institution and research outputs;
  • Tuition fees; and
  • Corporate activity, private donations and investments.

State subsidies account for 50% to 60% of most universities’ total revenue, according to a document by the department of education, titled A New Funding Framework. The tuition fee component is typically in the region of 30% to 40%, an amount close to R30-billion a year if the cost of student accommodation in residences is included. Third-stream income amounts to between 5% and 30% of the budget, depending on the university.

A glance at how universities spend their budgets might generate some appreciation of their funding needs.

How universities spend
In 2013, the then Higher Education South Africa (Hesa) conducted a study to determine spending patterns of the then 23 public universities. That study established that more than half (53.5%) of universities’ income is spent on staff costs, although it was as high as 65% to 70% for some.

University graduates earn much more than their peers with no post-school education. It takes a minimum of a master’s degree to teach at a university. Senior lecturers hold at least a doctoral degree. If we accept that the university sector has the highest concentration of graduates and postdoctoral incumbents, then the sector’s wage bill can be expected to reflect that reality.

The difficulty of retaining quality talent adds another nuance to the universities’ staffing dynamics.

The institutions’ second-biggest area of spending is on services (catering, cleaning, gardening, security and transport), taking up 25.9% of annual budgets. The remaining 20% is spread between infrastructure (buildings, amenities, vehicles, equipment and furniture), consumables (for example, food, fuel and water) and general maintenance. These fixed costs, representing what it takes to run a university, are here to stay.

Further affecting universities’ spending is the value of the rand. Institutions are hit hard by the foreign exchange costs of imported research equipment, electronic and other library resources, information communication technology equipment and software licences.

Spending on electricity, water and municipal rates and taxes has also risen far above official inflation rates.

Declining state subsidies and fees
Although funding for the higher education sector has grown at about 8% overall, this funding is negatively affected by the high growth in student numbers and the cost of other projects, even before inflation is taken into account.

Furthermore, the block grants, rising at 6% annually, do not keep up with universities’ rate of inflation, commonly known as the higher education price index.

Hesa, in 2014, demonstrated that the price index rose at 7.7%, a full 2% above the 5.7% consumer price index for that period. Universities’ historical adjustment in
tuition fees above CPI has been a realistic attempt to offset the shortfall arising from the declining state subsidy.

For that reason, it remains Usaf’s position that the block and research grants must rise in proportion to this reality; that is, at closer to 8%. Despite the best intentions of policymakers, this battle has proven complex, given the underperforming economy, a declining tax base and other competing social priorities.

Even as universities kept the tuition fee increases at a minimum, fees still pushed the price of higher education beyond the reach of the poor. That is why vice-chancellors understand and empathise with the plight of many thousands of students. Although those who can pay their way are doing so and the most needy (albeit not all) are being catered for by the National Student Financial Aid Scheme (NSFAS), Usaf remains most concerned about the “missing middle” students, whose annual family income is above R122 000 a year but below a minimum that would qualify them for bank loans.

It was the concerns about this group that inspired the formation of the Ikusasa Student Financial Aid Programme by the funding reference group of the department of higher education and training. This fund is exploring the possibility of low-cost loans for this group through a private-public partnership.

The other area of deep concern is that the allocation of funds to NSFAS by the department and other agencies does not allow the system to address the needs of all indigent students. There simply isn’t enough money.

Income streams must flow
While we wait for the presidential commission investigating the feasibility of free higher education to pronounce on its findings, all three revenue streams need to continue flowing.

The research mill in the university system continues to grind. New knowledge keeps being generated and universities continue to release new cohorts of graduates into the economy, year after year. Tuition fees play a critical role in keeping that machinery oiled.

The private good derived when graduates enter the labour market on a comparatively higher ticket than those without university education also justifies tuition fees. Even South Africa’s Constitution, widely described as liberal, does not provide for free higher education. Instead, it recognises the right of every citizen to further education, and compels the state to use “reasonable measures” to make higher education “progressively available and accessible”.

Usaf’s position on this matter is simple. The state can adopt fee-free higher education as long as it sources the R30-billion usually derived from tuition fees elsewhere. In the meantime, a fee regime has to remain in place.

Universities at risk
If any component of universities’ funding was to be removed, not only universities but also the country would suffer the consequences. These include severe budget cuts that might compromise research, affect the quality of programmes and exacerbate the skills shortage of the public and private sectors.

Budget cuts could also negatively affect staff at a time when institutions are trying to improve student-to-staff ratios.

If universities took the route of staff retrenchment, the progress they have made to date in decreasing student drop-out rates would be reversed. The wealthy would remove their children from the public university system and place them in private institutions and, ultimately, the university sector would collapse.

The right thing to do
When Rhodes University decided to withhold students’ mid-year results on account of outstanding fees, parents began to pay. Within a week the university’s bank balance had grown by R12-million. This demonstrates that citizens deliberately held back fees, possibly hoping for a policy change to a fee-free education system.

Students who can afford to pay fees must continue to do so while the state continues to support their needy, academically deserving peers.

Usaf is hoping that tuition fees will continue to be adjusted upwards, unless an alternative substitute is found. Until the presidential commission proposes a viable alternative, tuition fees must stay. As citizens, we must unite in protecting our universities and enabling them to function.

Mateboho Green is the manager of corporate communications of Universities South Africa

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