Funding and the Attainment of Transformation Goals in South Africa's Higher Education

The link between the funding of higher education and the attainment of higher education transformation goals in South Africa, especially access by students from previously under‐represented communities, is the main focus of this paper. Specifically, the paper examines three questions: (a) How does public funding of higher education encourage (or discourage) the attainment of higher education transformation goals in South Africa? (b) What challenges do frequent tuition fee increases pose to the attainment of higher education transformation goals? (c) How can South Africa's higher education be made affordable for indigent (mostly black) students? The paper concludes that although South Africa's higher education funding formula is generally geared towards attaining the goals of transformation, several of its aspects are inimical to the achievement of these goals. Further, declining public funding of higher education and frequent tuition fee increases by public universities vis‐à‐vis higher education's natural inclination to reproduce, and even to exacerbate, existing social disparities and inequalities do not bode well for the attainment of transformation in South Africa's higher education. This is aggravated by existing high levels of poverty and inequality mostly affecting the majority of the communities that were marginalised during apartheid.

Transformation is one word that captures the social, economic and political imperatives and aspirations that followed the collapse of apartheid and the onset of democracy in South Africa. Following the dawn of democracy in 1994, and after the many years of institutionalised racism, marginalisation and deprivation of a significant section of South African society, it was (and still is) incumbent upon the post‐apartheid state to commence a necessary and deliberate effort to cleanse the country of apartheid accoutrements, and mitigate its effects. Many strategies have since been promulgated to try to transform the social, economic and political structures and institutions of South African society, in line with the ideals and aspirations of the post‐apartheid state. One such important sector that has been a continuing subject of transformation is higher education.

The higher education system in apartheid South Africa was characterised, in the main, by racial and ethnic exclusivity, a fragmented and uncoordinated higher education system, and unacceptably low participation rates by Black students (NCHE, [19]; Bunting, [2]). At the onset of democracy in 1994, the country's higher education system was characterised by several deficiencies, identified by NCHE ([19], pp. 1–2) as including:

• • Perpetuation of an inequitable distribution of access and opportunity for students and staff along axes of race, gender, class and geographic origin. There were gross discrepancies in the participation rates by students from different population groups [...].
• • A chronic mismatch between higher education's output and the needs of a modernising economy, and discriminatory practices that limited the access of Black and women students into fields such as science, engineering, technology and commerce.

The above deficiencies, and others, had to be the subject of transformation through, inter alia, providing for expanded access with a focus on equity and redress, establishing programmes for capacity development, developing a new goal‐orientated, performance‐related funding system and expansion of the national student loan scheme (NCHE, [19]; DoE, [5]).

An important instrument that has been utilised by the South African government to try to achieve some of the stated goals of transformation, especially expanded access for Black students, is funding. As pointed out by Teixeira et al. ([26]), the funding (both public and private) of higher education is intricately linked with issues of accessibility (a key transformation goal in South Africa). It is this 'intricate' link between higher education funding and accessibility in South Africa that is the subject of this paper. Specifically, the paper seeks to draw a relationship between public funding of higher education in South Africa, tuition fees, and the achievement of some of the aims of transformation, especially access by students from previously under‐represented communities. The paper is guided by the following three main questions:

• a. How does public funding of higher education encourage (or discourage) the attainment of higher education transformation goals in South Africa?
• b. What challenges do frequent tuition fee increases pose to the attainment of higher education transformation goals?
• c. How can South Africa's higher education be made affordable for indigent (mostly Black) students?

The paper starts off by examining the current higher education funding framework, before briefly discussing trends in public funding of higher education. This is followed by a discussion on tuition fees and possible ways of making higher education affordable and accessible to poor South Africans. The last section is the conclusion.

Government funding of higher education has recently (2004) shifted from the apartheid era funding formula that primarily used enrolment‐driven calculations to produce an institutional funding amount to a new formula that is intended to address the country's new policy goals of equity and redress. A basic feature of the new funding framework (NFF) is that it links the awarding of government higher education grants to national and institutional planning. This funding/planning link makes the new framework essentially a goal‐oriented mechanism for the distribution of government grants to individual institutions, in accordance with (a) national planning and policy priorities, (b) the quantum of funds made available in the national higher education budget, and (c) the approved plans of individual institutions (MoE, [17]). The new funding framework is, accordingly, an important steering mechanism for achieving pre‐established policy priorities.

The national budget for higher education institutions (HEIs) is divided into three components. These are block grants, earmarked funds and institutional restructuring funds. Block grants consist of four components. These are: teaching input grants, teaching output grants, research output grants and institutional factor grants. Most earmarked grants are set aside for funds for the National Student Financial Aid Scheme (NSFAS) (MoE, [17]). Since 2004 the distribution of funds against the three broad funding categories has shifted as shown in Table 1.

Table 1. Distribution of government grants to public higher education institutions, 2004–2009.

Block grants comprise of a teaching input grant generated through a formula which considers approved full time equivalent (FTE) student places weighted against predetermined teaching input indicators or criteria (e.g. course material, course level, and instruction‐delivery mode); teaching output grant which is dependent on the institution's actual number of non‐research graduates and diplomates and a normative total of non‐research graduates and diplomates which it should have produced in terms of national benchmarks. These totals produce different grants for an institution. Other components of the block grant are research output and institutional factor grants.

An institution's research output grant is dependent on actual totals of research graduates and research publication units and a normative total which the institution should have produced in terms of national benchmarks. Institutional factor grants are for institutions with a large proportion of disadvantaged students. The setting aside of funds for institutions with large proportions of disadvantaged students is in line with one of the priorities set by the National Plan for Higher Education (NPHE); that of increasing 'the participation, success and graduation rates of Black students in general and African and coloured students in particular' (MoE, [16], p. 35). There are also institutional factor grants allocated on the basis of the size of institutions.

Although the NFF is designed to steer South Africa's higher education towards achieving particular policy goals, including transformation, several of its aspects are likely to undermine the attainment of these goals. For instance, the NFF is not driven by the actual costs of higher education provision but by the amount of funds made available in the national higher education budget. As Steyn and de Villiers ([24], p. 56) point out, 'the running of universities ... entails costs and to be efficient, subsidies should be related to reasonable costs'. The NFF thus 'serves as a division mechanism of a pre‐determined total grant allocation' (Steyn & de Villiers, [24], p. 56). The consequence, as will be shown later in this paper, has been insufficient funding of the higher education sector.

The manner in which institutional factor grants for disadvantaged students are allocated is another moot area. This grant operates by adding an amount to the teaching input grants of institutions, depending on their proportions of disadvantaged students (MoE, [17]). For the purposes of this grant, disadvantaged students are deemed to be African and coloured students who are South African citizens. It is instructive that unlike in other redress initiatives, South African‐born Indian students are not considered a disadvantaged group in the allocation of institutional factor grants.

The use of race and not socio‐economic need as proxy for disadvantage has several implications: a university with a high proportion of economically challenged students from outside the two designated population groups cannot benefit from these grants. Further, institutions with big populations of African and coloured students from well off backgrounds and who attended high quality and expensive secondary schools will also be rewarded. It is not clear in the latter case what the purpose of the institutional factor grant would be.

The relatively small size of the grant (about 6% of block grants) may also not be a sufficient monetary incentive for the better established and resourced historically advantaged universities (HAUs) to enrol high numbers of Black students. From the perspective of institutional theory, it can be argued that the financially stable HAUs will enrol many Black students for purposes of seeking legitimacy by conforming with policy expectations (external norms) and not because they have been motivated by the institutional factor grants.

Other than enrolments, the NFF also rewards institutions that register significant internal efficiencies through high success rates. Where many students graduate on time, the concerned university earns more output funding and vice versa. According to Le Roux and Breier ([13]), this aspect of the formula (rewarding high success rates and vice versa), though desirable, is likely to have several unintended consequences. They argue that HEIs (especially the elite ones) will be discouraged from accommodating students who may have the ability to succeed, but are badly prepared for university. 'Institutions pay a big penalty if they admit students who cannot complete [their study programmes] in the required time ... because of an inability to pass all the courses' (Le Roux & Breier, [13], p. 3).

The concern raised by Le Roux and Breier ([13]) seems to suggest that the funding framework punishes the innocent party, that is, the university and not the 'poorly prepared students'. The concern further seems to imply that the funding framework should provide more resources to institutions with such students (the majority of whom are Black) so as to implement programmes that will mitigate their poor preparation, or alternatively, that such students be identified and be given a longer duration to complete their studies. In that way, universities will only be 'punished' for failing to pass 'properly' prepared students. Although such strategies (the first strategy could be linked to institutional factor grants) are welcome in the interest of transformation, it is important to point out that mitigating the overwhelming effects of a poor school system is not a task many HEIs are equipped to effectively undertake. Schooling problems should ideally be fixed at the school level. But until the school system is fixed, Le Roux and Breier's ([13]) point is important.

The criticisms of the NFF by Le Roux and Breier ([13]) point to the significant influence the framework has on the institutional behaviour of public universities. It is incontestable that not many decisions are made by universities, their faculties and departments, without making reference to the funding framework. There exists an obsession with 'subsidy'. Which students to enrol (in terms of race, nationality, etc.), when to enrol students, what kinds of programmes should be mounted, how study programmes shall be provided (part time or full time, etc.); all seem to be determined, to a large extent, by subsidy considerations. Thus, although the funding framework is intended to steer public universities towards achieving particular transformation goals, the unintended consequences of the framework on the behaviour of universities could be to slow down the attainment of these lofty goals.

Notwithstanding the above criticisms of the NFF, as pointed out by Bunting ([2]), the current funding framework is generally consistent with some international accounts of the role which government funding can play in the implementation of national higher education policies (Ziderman & Albrecht, [30]; Merisotis & Gilleland, [15]). Unlike the apartheid era funding frameworks which rejected the principles of equity and redress, holding that 'it was not the business of the higher education system to deal with social inequalities which affected either individuals or institutions' (Bunting, [2], p. 84), the present funding framework is generally aligned with government's policies of equity, redress (transformation) and development. However, as will be shown in the subsequent paragraphs, although the NFF is generally aligned with government's transformation agenda, inadequate and plummeting public fiscal effort for the higher education sector has put the attainment of government's transformation objectives, on a large scale, in jeopardy.

In recent years, state funding of South Africa's higher education has declined. This is confirmed by several indicators, viz. state funding of higher education as a percentage of GDP, state funding of higher education as a percentage of total state expenditure, and state funding of higher education adjusted for inflation. Figures 1 and 2 provide time series data on state funding of higher education as a percentage of GDP and state funding of higher education as a percentage of total state expenditure, respectively. Both figures show a declining trend in state funding of higher education.

Graph: Figure 1

Graph: Figure 2

As a percentage of GDP (Figure 1), state funding of higher education declined from a high of 0.82% in 1996 to a low of 0.67% in 2007. From 1995 to 2000, it averaged 0.77% and from 2001 to 2006, 0.69%. As a percentage of total state expenditure (Figure 2), after peaking at 3.08% in 1999, it has consistently declined through the years reaching 2.45% in 2007. A recent analysis shows that between 2000 and 2004, government funding of higher education declined by 3.1% in real terms (DoE, [8]).

Another important aspect of the weakening fiscal effort by the state for higher education is the termination of allocations for purposes of erecting new buildings at institutions as from the 1997/98 financial year (SAUVCA, [22]; Steyn & de Villiers, [24]). This has meant that the construction of new buildings (to accommodate the desired increase in student numbers), renovations and repairs are hamstrung. The inadequate funding for capital expenses has also forced many universities to fund capital development from their operating budgets or take loans (HESA, [9]). The funding of capital development from operating budgets has, inter alia, implications for tuition fees, which often have to be increased to meet universities' expenditure needs. The government has, however, recently allocated R3.5 billion to universities for improving institutional infrastructure and student outputs (MoE, [18]). HESA ([9]) points out that this allocation has not benefited all institutions to the same extent.

The foregoing discussion of state funding of public higher education generally shows a weakening fiscal effort for the sector. The consequence of this is an imbalance or lack of fit between the overwhelming demands placed upon the sector, including transformation, and the sector's capacity to meet these demands. Akor and Roux ([1], p. 429) make the point that the weakening state funding of higher education:

[...] would not enhance the higher education's transformational need for increased access to higher education; neither would it enable the rendering of sufficient services to the previously disadvantaged groups. As a result of the insufficient funding allocated to universities, many of the less privileged institutions remain unable to upgrade their facilities and infrastructure like laboratories and libraries.

Another result of financial pressure is that the state seems to have 'backtracked' on some of its transformation goals for higher education. The recent introduction of enrolment caps, i.e. for subsidised students, is so far the strongest indication that government was 'struggling' to adequately fund higher education to expeditiously achieve the goals of transformation. When introducing enrolment caps in April 2004 the education minister argued that:

[...] the higher education system has grown more rapidly than the available resources. The resultant short‐fall in funding has put severe pressure on institutional infrastructure and personnel, thus compromising the ability of higher education institutions to discharge their teaching and research mandate. (DoE, [6], p. 3)

As shown above, enrolment caps were introduced to forestall a situation where growth in enrolments exceeded real growth in the public funding of higher education. It further shows that due to fiscal constraints the South African government may not expedite its agenda of providing higher education to previously disadvantaged individuals and communities. Figure 3, showing higher education participation rates by population groups, suggests that enrolment caps were introduced before the attainment of a significant improvement in the participation rate of Black students, especially Africans and coloureds compared to the participation of the Indian and White population groups.

Graph: Figure 3

The problem of diminishing state capitation for public higher education is a global one (Clark, [4]; Johnstone, [10]; Ouma, [20]). Generally, universities across the globe are faced by what Johnstone ([10], p. 34) describes as creeping austerity: a slow but 'unrelenting worsening of the financial condition of most universities [...], particularly as they are dependent on governmental, or tax‐generated, revenue'. Overall, the main challenge regarding South Africa's funding of higher education is that it is not commensurate with the rising costs of higher education provision, and the higher education transformation agenda of the post‐apartheid state.

Shortfalls in state funding often cause some kind of disequilibrium (vulnerability) that requires a response by universities so as to remain effective in prosecuting their missions, and survive as effective organisations. This is in line with resource dependence theory's (Pfeffer & Salancik, [21]) postulation that organisations deprived of critical resources will seek to survive by seeking to ensure a continuous flow of resources. For universities, this search usually entails the implementation of various income earning strategies, including raising of tuition fees, commercialisation and donations from alumni. The strategy of choice for almost all of South Africa's public universities to mitigate declining state financial support is regular tuition fee increases, which has potentially inimical implications for poor students, known to be price sensitive. That being the case, unmitigated tuition fee increases are likely to encourage higher education's natural inclination to reproduce, and even to exacerbate existing social disparities and inequalities (Teixeiria et al., [26]).

South Africa, unlike many other African countries, has an established tradition of cost‐sharing in higher education. Over time, South African universities have made adjustments in the manner in which tuition fees are levied both for cost recovery and income generation purposes. These adjustments mainly entail differential pricing of various academic programmes and regular tuition fee increases (Ouma, [20]). The regular tuition fee increases have, in the main, been a response to declining public funding (HESA, [9]). Public funding, as has been shown in the preceding section, has not kept pace with the cost increases of higher education provision. This is not unique to South Africa. Worldwide, public financing of higher education is generally unable to keep up with the trajectory of cost increases in the sector, due mainly to the intense competition from other competing public needs such as primary and secondary education, public health, public infrastructure, economic development, safety and security (Johnstone, [10]).

Even though tuition fee increases are a rational response to the increasing costs of higher education provision and declining public support, in line with the main focus of this paper, the subsequent discussion interrogates the possible implications of tuition fee increases for transformation in South Africa's higher education, especially with regards to equity of access. It should be emphasised that this discussion is neither about the suitability of charging tuition fees nor is it a case for freezing tuition fee increases. It is also not a criticism of universities for regularly raising tuition fees since, as shown in the preceding section, declining state funding and increasing costs of provision require some response by universities for them to be able to prosecute their important missions, including transformation. Rather, it is an examination of a prevailing phenomenon in South Africa's public higher education (frequent tuition fee increases) and its possible implications for transformation, especially as regards equity of access. The discussion also sets the context for a discussion of possible interventions for mitigating the possible negative implications of tuition fee increases.

There is general consensus that high private costs of higher education are likely to impact negatively on higher education access and persistence by especially low income students (Vossensteyn & De Jong, [28]; Vossensteyn, [27]). Globally, students from disadvantaged socio‐economic backgrounds are usually the most under‐represented in higher education participation profiles (Vossensteyn, [27])—a disadvantage that is likely to be made worse by increasing private costs of higher education and of course, as mentioned in subsequent sections, inadequate student grants and loans, and a failing public school system.

Given the South African context, characterised by unacceptably high levels of inequality (Seekings & Nattrass, [23]), with a high percentage of previously disadvantaged communities remaining poor, it is reasonable to conclude that high levels of tuition fees will discourage students from low‐income families from participating in higher education. A recent study by Letseka and Maile ([14]) claims that 40% of South African students drop out of university in their first year, mainly because of financial difficulties. Other than encouraging extremely high internal inefficiencies, by implication, Letseka and Maile's ([14]) study suggests that financial difficulties may inhibit access to higher education by South Africa's poor.

The theory of behavioural economics, especially the phenomenon of 'loss aversion', also attempts to explain, for instance, why low income students are likely to be discouraged from pursuing higher education due to tuition fee increases. The phenomenon of loss aversion is characterised, in the main, by the proposition that 'people are significantly more averse to losses than they are attracted to gains of the same size' (The Royal Swedish Academy of Sciences, 2002, cited in Vossensteyn & De Jong, [28], p. 229). Vossensteyn & De Jong ([28], p. 229) expound:

In terms of financial incentives related to student choice, loss aversion predicts that students will be more deterred by the costs of study, like tuition fees and loans, than they will be attracted by subsidies, like grants, scholarships, future income, labour market opportunities and status.

Responses to tuition fee increases in South Africa are not unlikely to mirror the predictions of the phenomenon of loss aversion, especially among low income students. This is especially so because of perceptions of un‐affordability that are inevitably created by tuition fee increases and high drop outs due to financial difficulty. Considering that those who drop out due to financial difficulty are from unfavourable economic backgrounds and are likely to be 'first generation' university students in their families, it can be concluded that unmitigated tuition fee increases reinforce the notion that higher education is beyond the reach of the poor. High drop outs by poor students could have the long term effect of discouraging ambition for higher education study by the poor.

The phenomenon of 'loss aversion' among South Africa's poor is also likely to be motivated by the fact that both NSFAS funding and university bursaries are not guaranteed for all deserving cases. The HESA ([9]) report indicates that many students who qualify for NSFAS funding miss out and university bursaries are often not sufficient to address the magnitude of student financial needs. Many students also do not receive enough NSFAS funding to cover their higher educational costs. Also, because of lack of information, a number of students are not aware of existing NSFAS and university funding opportunities. As such, several of these students, though deserving financial assistance, do not apply for NSFAS or university funding (HESA, [9]). Consequently, such students will be averse to tuition fee increases.

Overall, the importance of, and sensitivity to, tuition fees in higher education is explained by the fact that tuition fees are both a critical source of revenue for HEIs and a likely determinant of demand (both access and persistence) for higher education, especially in resource poor societies, and those with unacceptably high levels of inequality, such as South Africa. In such societies, the two important roles of tuition fees (as a source of revenue and a likely determinant of demand for higher education by the poor) are likely to be mutually exclusive. Thus, if left unmitigated, the practice by South Africa's public universities of frequently raising tuition fees has potentially negative implications for higher education access and participation by, especially, the many poor students, the majority of whom are Black.

The dominant response to diminishing state funding by universities, and that of poor students, their parents and the government could be summed up as one of being sensitive. Whereas universities are sensitive to declining capitation (financial instability), students, especially poor ones, their parents, and government are sensitive to tuition fee increases. Student sensitivity to tuition fee increases is likely to manifest in several ways, viz. limited enrolments by poor students, especially in prestigious high cost universities (in South Africa's case, it would mean an over‐concentration of poor Black students in previously Black only HEIs) and programmes, high dropout rate by financially challenged students (Letseka & Maile, [14]) and, as recently (2007 and 2008) witnessed in several South African university campuses, protest action. Government sensitivity[4] to tuition fee increases has recently seen the South African government toy with the idea of introducing a capped tuition fee system as a solution to the practice of frequent tuition fee increases by HEIs. The idea of introducing tuition fee caps raises the important question of whether government should regulate tuition fees; and how the possible negative access implications of high tuition fees could be mitigated.

A recent report by HESA ([9]), a response to government's intention of introducing tuition fee caps, concludes that government control of fees will be undesirable and detrimental to the well‐being of HEIs and HEIs' ability to prosecute their cherished missions and achieve the goals of transformation in higher education. Some of the main arguments presented in the HESA's ([9], pp. 40–43) report against government control of fees are:

• • Tuition fee increases are a response to declining state funding of higher education, and therefore, instead of capping fees, government should improve its capitation of higher education.
• • Institutions will as a consequence be encouraged to introduce additional student related charges that are notionally optional (e.g. Internet access fees, notes levies, charges for sports facilities, and transport charges).
• • Such interventions will negatively impact on equity. Some universities have self‐financed financial aid (bursaries and scholarships) schemes. Several HEIs also offer financial support to their students in cases where the NSFAS awards are insufficient to cover study costs, and also to students who do not qualify for NSFAS, but require funding. These contributions are obtained from tuition revenue and other internally generated funds. Capping tuition fees will make this kind of support unaffordable.
• • Implementation of such interventions will favour middle and higher income families (the rich). As such, capping tuition fees will not necessarily improve access for the poor; instead, it will result in making higher education even cheaper for the rich.

Generally, and as captured in the above arguments by HESA ([9]), government control of tuition fees is generally undesirable (also see Jongbloed, [12]). From HESA's ([9]) arguments it is implied that due to falling state financial support, HEIs, being free to set their fees, charge fees that bear a 'closer relationship' to the costs of supplying higher education. That is, as indicated in the preceding paragraphs, HEIs mitigate declining state financial support and increasing costs of provision by, inter alia, increasing tuition fees. The implication of this argument is that to forestall the spiralling increase in the net cost of higher education to individual students, public funding should be enhanced. The second point implied in the arguments by HESA ([9]) is that tuition fee increases apparently 'benefit' the poor since the extra revenues due to tuition fee increases are used to subsidise students from unfavourable economic backgrounds. Thus, ironically, raising tuition fees has positive equity implications as fees paid by students from rich families are used to subsidise the education of the poor.

Given the finite nature of government finances vis‐à‐vis the many demands on the exchequer, it is not foreseeable that the South African government will significantly improve its funding of higher education to such an extent that tuition fee increases will be unwarranted. Further, such a large scale injection of funds will disproportionately benefit students from rich families. Higher education will become even cheaper for such students and their families, yet they can afford to pay present tuition fee levels. Such an approach to reducing tuition fee levels would be inequitable. Given the high levels of inequality in South Africa (Seekings & Nattrass, [23]; HESA, [9]), poor South Africans will still be unable to afford higher education. This however, does not imply that state funding of higher education should not be enhanced.

At the same time, the cushioning of poor students from the potentially perverse effects of tuition fee increases cannot be left to the extra revenues generated from tuition fee increases. Other than such revenues being inadequate, the manner of their generation (from tuition fee increases), as has been pointed out, has potentially inimical implications for participation in higher education by poor students. There is therefore a need for properly targeted mechanisms for limiting the negative effects of higher private costs of higher education on poor South Africans' access to high quality higher education. The following section discusses such mechanisms.

The mechanisms discussed in this section regard, in the main, suggested reforms to the National Student Financial Aid Scheme (NSFAS) and are informed by three main considerations: first, expansion of higher education access for the poor, and second, that given the considerable levels of poverty, especially among Black South Africans, it may not be possible to have 'low' tuition fees that the majority of poor people can afford. The third consideration is equity and affordability. Mechanisms for increasing access should be both affordable to government and equitable. They should target those in need of assistance, without necessarily making higher education cheaper for those who can afford the present costs.

The National Student Financial Aid Scheme is an income contingent loan and bursary scheme. Initial NSFAS awards are 100% loans; afterwards up to 40% of the loan is converted into a bursary depending on the student's academic results (HESA, 2008). Since its inception the scheme has assisted many poor, and mostly Black South Africans to access higher education. However, several factors have been identified that limit the scheme's ability to optimally achieve its intended objectives. These factors include:

• a. Inadequate funding. HESA ([9]) observes that NSFAS funding is insufficient to award loans to all applicants that potentially qualify for NSFAS, and that both the maximum and minimum sizes of awards are not sufficient to meet the study costs of students. There is therefore unmet demand for NSFAS funding.
• b. NSFAS allocations are currently based on average cost of study programmes and not the actual cost. This leads to underfunding, hence the inability by some NSFAS beneficiaries to meet their study costs.
• c. Means testing that does not consider broader manifestations of need. The HESA ([9]) report points out that the current NSFAS threshold of eligibility is low. This has the consequence of leaving out students who qualify for financial assistance, especially those from (lower) middle class families.
• d. Race based formula. The NSFAS allocates funding to institutions based on an annual allocation assessment and formula. The allocation formula is informed by the number of disadvantaged students, demographic profile and the average full cost of study (AFCS) at the respective institutions (Steyn & de Villiers, [24]). The weighted number of disadvantaged students (WDS) at each HEI is determined by means of the following race‐based formula (Steyn & de Villiers, [24], p. 66):

•

Graph

HESA ([9]), Le Roux & Breier ([13]), Steyn & de Villiers ([24]) and Wangenge‐Ouma & Cloete ([29]) have pointed out that the current race‐based formula for allocating NSFAS funding is undesirable. Two main arguments have been presented against the race‐based formula: that since the amounts allocated are not based on economic need of students but race, rich, historically advantaged universities that attract Black students from relatively well to do backgrounds are 'unfairly' advantaged (Le Roux and Breier, [13]). These institutions, according to Le Roux & Breier ([13]), receive favourable funding against fewer needy students as compared to historically disadvantaged universities, most of which admit poorer Black students in need of greater funding. Secondly, since students from all race groups qualify for NSFAS funding, it does not make sense for institutional allocations to be based on race. Consequently, the NSFAS allocations are hardly adequate, especially for institutions with large numbers of financially needy students from all the population groups.

The above factors make it incumbent that remedial measures be undertaken. Such remedial measures would include a significant increase of funding to the NSFAS not only to meet increasing demand for NSFAS funding but also the actual costs of study. Increasing funding for the NSFAS, unlike blanket, large‐scale budgetary support for HEIs, has positive equity implications as NSFAS funding specifically targets the marginalised and poor, and does not make higher education cheaper for the rich. It is also not distributionally perverse. It should be emphasised that improving NSFAS funding does not mean neglecting or limiting funding for the sector. Higher education institutions should continue to be financially enabled to prosecute their missions. The challenge will be to balance between public subsidy levels that will enable HEIs to function effectively and discourage frequent tuition fee increases (hence forestalling possible loss aversive behaviour by poor students) and support for NSFAS to mitigate cost related barriers to higher education access and persistence.

It also seems necessary that the current race‐based allocation formula be re‐considered, so that funding is targeted at the most needy. In that way, universities with the highest number of actual needy students will receive greater allocations, to cover the needy students' study costs, hence reducing the net cost of attendance for poor students (Wangenge‐Ouma & Cloete, [29]).

To lessen pressure on the fiscus, the private sector should be motivated, for example through tax rebates, to contribute to the NSFAS or establish their own bursary schemes. Such bursary schemes could target poor students pursuing studies that are relevant to the companies' skills requirements or poor students from the areas where the companies are located or where their raw materials are sourced. The former speaks to the need by companies, as key consumers of high level skills, to actively contribute to human capital formation, and the latter could be seen as a form of community service or corporate social responsibility. The government could designate the establishment of bursary schemes by companies or companies' contributions to the NSFAS as priority community service, together with other important initiatives such as HIV/AIDS prevention campaigns.

Generally, to be able to make a noticeable impact on the magnitude of the challenge of increasing access to higher education for low income students, a multi‐pronged approach is necessary, i.e. a multiplicity of mechanisms such as those suggested above have to be implemented simultaneously. Further, it should be emphasised that although reducing the private costs of higher education is important in encouraging access by poor and marginalised students, it cannot be a sufficient strategy on its own. As part of the suggested multi‐pronged strategy, several non‐cost reduction strategies must also be implemented. For instance, poor students should be provided with information on the availability of various financial support mechanisms. The HESA ([9]) report points out that many students fail to apply for university admission but then turn up for admission during the registration period. Obviously such students have not been provided with the required information, and considering that many of these students often have not made arrangements to pay fees (HESA [9]), it can be concluded that they may not be aware of available funding opportunities. Therefore, information about financial opportunities and available support measures for the poor should be disseminated widely and continuously. Schools would play a critical role in this regard.

Perhaps the most important non cost‐reduction strategy is improvement of the school system. Poor students, like other students, must attain university entry requirements for them to gain admission. Reducing the cost of higher education for the poor, while not fixing the school system, will be an exercise in futility. Teixeiria et al. ([26], p. 7) make the important point that '[a]ccess to higher education everywhere is limited by the level and quality of the secondary education'. Given the low‐performing school system in South Africa, which mostly affects the poor, it is reasonable to conclude that not many genuinely poor South Africans qualify for university intake. As such, to encourage the participation of poor Black South Africans in higher education, the school system must be fixed so that many poor Black students qualify for university education, and benefit from available funding opportunities.

This paper has discussed a dynamic of funding related factors with implications for the achievement of the goals of transformation in South Africa's higher education, especially access by poor Black students. It has been argued that although the new funding formula is intended to addresses the country's new policy goals of equity and redress, some of its aspects are likely to achieve unintended results. Declining public funding of higher education, frequent tuition fee increases, inadequate funding for the NSFAS and the present NSFAS architecture have also been identified as obstacles to the attainment of South Africa's higher education transformation goals. These factors have tended to increase the private cost of higher education, hence creating a formidable barrier to higher education access and persistence, especially for the poor. To mitigate the effects of the rising private costs of higher education, the paper has suggested several reforms to the funding system, among them, the manner in which NSFAS funding is allocated.

Although reforming the country's higher education funding system is important in expediting the achievement of the lofty transformation goals, funding alone will not make this possible. The need to fix the school system cannot be overemphasised. It must be stressed that the worst affected by South Africa's ill‐performing public school system are the poor, who consequently will continue to be ill‐prepared for higher education, even with generous funding of the higher education sector. It must thus be realised that the achievement of transformation goals in higher education will be in vain unless measures are urgently put in place to address both the funding and non‐funding related challenges.

Gerald Wangenge‐Ouma is a senior lecturer in higher education studies at the University of the Western Cape in South Africa. He was awarded a PhD by the University of Cape Town in June 2007, for a thesis entitled Reducing Resource Dependence on Government Funding: the Case of Public Universities in Kenya and South Africa. His main research topics are financing higher education and higher education policy. Recent publications include articles in Higher Education, Journal of Higher Education Policy and Management and South African Journal of Higher Education.

The useful comments and suggestions made by the two anonymous reviewers are appreciated.