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University fees: The impossible trinity of higher education

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Revolutionary actions at UCT taking its toll: Image tweeted this morning by RhodesMustFall

Revolutions at UCT taking its toll: Image tweeted this morning by RhodesMustFall

A few months ago, I had one of the most gratifying experiences of my academic career, as a member of an appointment committee at Stellenbosch University. We had two candidates for a tenure-track position in economic history within the Department of Economics. Both were  Masters students within our department, but the quality of the interviews would have suggested otherwise: the candidates were clearly passionate, eloquent and thoughtful in their answers.  I remember thinking afterwards of the story of Paul Samuelson’s dissertation defense at Harvard, when one member of the committee, the great Joseph Schumpeter turned to another member, Nobel Laureate Wassily Leontief, and asked, ‘Well, Wassily, do you think we have passed?’. And it’s true: the questions both candidates asked of us were often more grueling than what we asked them.

The point is, if we had the resources, there was no reason not to appoint both. In fact, that was the recommendation of several members of the appointment committee.

But we couldn’t. Because of something called the Budget Constraint.

This week, on campuses across South Africa, students will continue their protest against higher tuition fees. Classes at Wits University were called off for several days last week as students demanded that a fee increase of 10.5% for next year be rescinded. Similar protests are happening as I write his at UCT and Rhodes and Stellenbosch in the face of similar increases.

In some of the comments I’ve read, the increases are seen as a sinister way to exclude poor students, almost all black, from South Africa’s elite universities. (This is happening at other universities too: Fort Hare has proposed an increase in registration fees of 42% and an increase in tuition fees of 15%. As I write here, there are other serious issues at Fort Hare too.) But this sinister explanation is simply not true: universities are desperate to attract the best talent and ensure their success. What students often don’t know is that a university forgoes its government subsidy when a student fails, which covers about two-thirds of the total cost. Failure is expensive, both for the student and the university.

But it is also true that a 10.5% hike is close to double inflation. And attending university is already incredibly expensive. By my estimates, at least 95% of South Africans cannot afford to spend R100 000 a year to send their kids to varsity (which would include tuition fees, accommodation, textbooks, and spending money). To give some context, only 4% of South African households earn R500 000 per year or more. Most students need a loan, as I did and almost all of my friends. But we were the lucky ones. Many students’ parents simply don’t have the collateral to get loans. Some parents saved throughout their adult lives, forgoing many things to give their kids the opportunity of a better life. Here’s a story of one of our students:

My dad always reminiscences on the poverty of the 70s in KZN, when my grandfather couldn’t get a job in Johannesburg. My grandfather would sell one of his cows, so that all the children would at least have a pencil to write with and a book to write in. This meant that there was never any money left over for shoes. Dad always talks about the frost bites in winter and how he couldn’t feel his toes on his way to school. But, all he knew was that he had to get to school .

From those harsh experiences, my parents have instilled in us a deep sense of love, respect and appreciation for education. At some point my sister and I were both at Wits and UCT respectively and my parents definitely felt the financial burden to get us through school. It wasn’t easy, but all they knew was that they had to get us through varsity. We thank God that they could. I know that a 10.5% increase in fees would have compromised their ability to get us through school. Some of my friends were not so fortunate. I’ve seen many friends and colleagues being financially excluded in the middle of their degrees.

The #witsfeesmustfall campaign is legitimate. For some a degree is just a paper, yet for another that degree is a ticket out of poverty.

So how should universities balance fee increases with the need to grow their talent pools, specifically of black staff? There are only three other alternatives: 1) cut budget items elsewhere, 2) raise income from third party sources, or 3) greater transfers from national government.

The first is dangerous. The first item on any budget – for a university, but also for a country or a household – that is usually slashed in the face of pressure is new infrastructure and maintenance of existing infrastructure. Consider this: when your monthly salary suddenly falls, what will you cut first? Probably the new tires for your car. You can always do that next year, right? Governments do the same: we can always build that power plant next year, or skip the maintenance on those roads for when we have a bigger budget. Many campuses across South Africa already struggle with dilapidated facilities. Infrastructure construction has not kept pace with student enrollment, meaning that students often have to sit on the floor in lectures. The point is: there is very little scope in university budgets for further fiscal restraint.

Raising third-stream incomes is a better alternative. But this type of income is often a consequence rather than a cause of excellence. Only the top universities will be able to attract third-stream incomes, either from donors or in collaboration with the private sector. Donor money is also incredibly contingent: donors want to add their names to new buildings, or see their donations spent on sport teams, or pay for bursaries. Few want to donate money to pay salaries. Third-stream incomes through collaborations with the private sector can provide additional capacity in some industries – like engineering – but even here the effect on the total budget is limited.

The only alternative is to increase government funding, which in South Africa lags behind what other countries spend on tertiary education. Here is Belinda Bozzoli earlier this year in the Financial Mail:

The fundamental problem is that the anchor of it all, the government subsidy, is low in absolute terms, by world standards. SA university funding languishes at levels below those of dozens of emerging economies. At a mere 0,6% of GDP it is dwarfed by the levels in Saudi Arabia (2,3%), Russia (1,8%), Argentina (1,4%) and India (1,3%). Furthermore, SA’s expenditure on higher education is a mere 12% of expenditure on education as a whole, whereas for the rest of Africa it is 20%, for OECD countries it is a massive 23,4%, and for the rest of the world it is 19,8%.

To make it worse, the core subsidy for universities has consistently fallen in real terms in relation to student numbers, which have, in turn, risen dramatically. This has skewed the entire model. The fall began under apartheid, when many free-thinking universities were regarded with suspicion, and continued apace under the ANC, which continues to choose to place nearly all of its education funding into schools.

Given the difficult environment Minister Nhlanhla Nene will face this week in his Medium Term Budget Policy Statement, with growth slowing, tax income falling, and few prospects of a reversal, a sudden increase in higher education funding is unlikely.

So what to do? As Dan de Kadt, a PhD student in Political Science at MIT remarked on Facebook this week, universities face a new impossible trinity: appoint more black scholars, reduce student fees, or cut costs through outsourcing and maintenance on facilities. An impossible trinity means that you can only have two of the three: so, which two will it be? That is why university management is such a difficult task: there has been protests on campuses against all three issues this year, and I’ve seen a poster on Twitter this morning demanding all three. This is like asking for healthy food, a lot of food and cheap food, all at the same time. It is an impossible trinity. You can always only have two of the three. (I know which two I chose as a student.)

The Budget Constraint is a reality that we cannot wish away. We can label it elitist, racist, capitalist, colonialist, and neoliberal, but it won’t disappear, not for a university, not for a country (as Minister Nene will try and convince parliament this week) and also not at the household level. The Budget Constraint is the reason poor families struggle to afford sending their kids to university. We have to find solutions within the Budget Constraint.

So what is the solution? I don’t think we can afford to relax spending on maintenance while running university facilities into the ground. (If we do, we also lose the ability to collect third-stream incomes, which further exacerbate the problems.) There is a trade-off between hiring more black academics (i.e. transforming faster) and lowering student fees. My preference is for the first, because I think we can think more creatively about the second.

I would argue for better targeted support for poorer students, instead of a blanket reduction in student fees. Here is my colleague, Eldridge Moses, on the topic:

Would bursaries and other forms of economic alleviation instruments not be more targeted interventions than the blunt instrument of blanket fee reductions or freezes? I would strongly suggest more progressive thinking on inequality reduction. A blanket freeze on fees benefits the rich way more than it does the poor due to access issues.

Eldridge is correct. Reducing student fees will benefit the wealthy more than poorer students because tertiary education is more accessible to the rich. So I would take a different approach and increase student fees by 25%. Yes, you read that right: 25%! Then I would use the additional 15% income from these fee increases to provide bursaries for students that come from poor backgrounds. A multi-tier or sliding scale system – where, for example, those with parents earning above R500 000 per annum pay R150 000, and those earning less than R50 000 pay R15 000 – is a far more equitable option than scrapping fee increases for all. And there will be additional funds to appoint black staff.

The sad reality is that the pressure to have a blanket fee reduction for all students will not only benefit wealthy students more than poor students, but it will inhibit universities’ ability to appoint excellent, young black scholars. In the job interview I took part in a few months ago, both candidates were female, black South Africans. Due to the Budget Constraint, however, we could appoint only one. The other candidate, equally brilliant, had a grandfather who struggled to get a job in Johannesburg and therefore had to sell his most prized possession to give his children, and grandchildren, the education they deserve.

I say: Let’s get a better fee system, and appoint his granddaughter.

Written by Johan Fourie

October 19, 2015 at 09:19

17 Responses

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  1. […] University fees: The impossible trinity of higher education | Johan Fourie’s blog. Insight into South Africa’s education problems, from a young Stellenbosch professor (whom I’ve met in person). […]

  2. […] options include adopting a sliding scale of tuition fees linked to the capacity of individual students to pay. It should move beyond the […]

  3. […] cut at UCT could plausibly be described as benefiting the rich rather than the poor, as argued in this related piece by a Stellenbosch […]

  4. The issue with the proposal is that NFAS is already failing to help the very poor who are in university. So if the fees are increased by 25% its not guaranteed that the surplus from the rich will cover for all poor student hence you stated that only 4% earn enough to be considered rich so that leaves 95 % of prospective and current students in SA that will need to be subsidised. Now let say majority get subsidies, what will the remaining very poor students do to survive when the extremely high fees are now 25% higher ……. Please clarify!

    M Andre

    October 25, 2015 at 20:20

  5. […] options include adopting a sliding scale of tuition fees linked to the capacity of individual students to pay. It should move beyond the […]

  6. university fees are only one aspect of “the cost of attending” university, the other being accommodation and, especially relevant to many previously disadvantaged students, the opportunity cost of having a working age adult not gainfully employed and contributing to family household income.
    I like the sliding scale idea.

    fiqhonomics

    October 22, 2015 at 13:49

    • As a nation we would be foolish to deny education to valid students because of funding. Johan does get to the point when he talks of the “impossible trilogy”. This is a zero sum game. The money can only be spent once. For each student subsidized, the money must be taken from another recipient or payer. When that “other” is you, you will understand it differently.

      Philip Copeman

      October 26, 2015 at 06:45

  7. […] cut at UCT could plausibly be described as benefiting the poor rather than the rich, as argued in this related piece by a Stellenbosch […]

  8. […] For more info on this issue of increasing university fees see Johan Fourie’s post: […]

  9. “where, for example, those with parents earning above R500 000 per annum pay R150 000, and those earning less than R50 000 pay R15 000”
    What if a parent in the first category is funding 3 university students and another one student?

    Jean Claude

    October 19, 2015 at 19:24

    • Yours is just a specific case of my query. Normally Johan is a very rational writer, he shows his human falibility here because he is objectively involved in the problem. It is clearly documented in any second year course in micro economics what happens when you implement a multi tier pricing strategy. The airline industry has been doing it for years. However making the assumption that any economic party is happy to subsidize another consumer’s consumption is like assuming can openers. You may was well join sociology.

      Philip Copeman

      October 20, 2015 at 12:07

      • Air travel is hardly analogous to tertiary education.

        fiqhonomics

        October 23, 2015 at 06:02

  10. You have been a little unfair Johan. You have only looked at the supply side and not at the demand side (for fees) The fees are used to support your research salaries and foreign trips. This is simply a fiscal battle in SA where too many people want to be on the receiving side of taxation (University Lecturers being front of the que) In classic micro economics you are asking to spread the consumer surplus from the rich consumers of education, and instead of giving them a better value for money product, use their fees to subsidise your salaries.

    Why should the parents of rich students have to bear the brunt of the education crisis.? This should be kept simply inside the fiscal budget (already R 250 Bn in the red).

    Now where was that schedule of US college fees?

    Philip Copeman

    October 19, 2015 at 10:26

    • R150,000/$11,334 is half of what the average student in the US pays for public university (R302,091/$22,826) per year. A majority of US students are forced to take out loans to cover their fees. http://mic.com/articles/106866/the-average-cost-of-u-s-tuition-is-33-788-per-year-in-these-7-countries-it-s-free

      melissa

      October 20, 2015 at 12:28

    • Why shouldn’t the parents of rich students have to bear the brunt of the education crisis? Wealth in South Africa is usually in the hands of white people who’s families had benefited financially from decades of Apartheid policies. That wealth is now in the hands of rich parents. It makes perfect sense that their children’s fees should subsidise the fees of others who suffer principally because of the same system that made them rich. How is this not obvious?

      Adaiah Lilenstein

      October 20, 2015 at 19:28

      • The area of redistribution in Economics is a complex one. The answer to your question lies in Public Finance 101. I will leave aside the argument against a progressive taxation (there is a strong argument that taxing the productive destroys wealth), but focus specifically in rich PARENTS. If the burden of rich people is to pay for the education of other peoples children, then that burden should be born by ALL rich people and not only by PARENTS. Can I make it simpler?

        Philip Copeman

        October 22, 2015 at 10:25

    • The US tertiary education funding system is a huge scam – federal loans practically guaranteed for all types of tertiary study irrespective of the market demand for particular qualifications – Graduates with Masters degrees in Latin only suitable to be employed as baristas, despite massive student debt.
      Obviously South Africa’s situation is not quite the same, but I thought of this when, at the beginning of the year during the student protests in Jhb, a student spoke on the radio, disgruntled because funding had been cut off – for her studies in “public relations”.

      fiqhonomics

      October 23, 2015 at 06:12


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