A proposal to make repayment of NSFAS loans more efficient has reinvigorated the debate around South Africa’s ability to recover student debt while still managing to fund future students.
The proposal would see South Africa’s existing income and employment data infrastructure – potentially including SARS – leveraged to track down graduates and recover payments based on their ability to pay.
SARS is not currently deducting NSFAS student loan repayments from graduates’ salaries as part of a new national initiative, and the idea is part of an ongoing discussion about how best to recover student debt and fund NSFAS.
Why grad repayments are being discussed
NSFAS has grown substantially as more students have accessed financial aid at public universities and colleges.
At the same time, questions have been raised about levels of student debt, particularly with regard to the funding of NSFAS itself.
The portfolio committee on higher education has noted that outstanding student debt is at R59 billion across the post-school sector, with significant amounts owed to NSFAS.
The size of this figure has contributed to calls for improved graduate repayment mechanisms so that those able to afford it are helping to fund future students.
How the proposed system would work
The principle of repayment based on income is that graduates’ contributions to repay their student loans should reflect their ability to pay, which is why those on higher salaries would pay more under such a system.
Graduates with lower incomes would be expected to pay less, while those with no income would have their repayments deferred until they were able to make payments.
The system should ensure that while students are expected to contribute towards their education, they can still meet their other financial obligations.
The method of repayment based on income is also known as income-contingent repayment, because graduates’ ability to make payments or repayments owed are contingent on their income.
NSFAS already offers payroll deduction
The discussion around mandatory payroll deductions – potentially enforced via SARS – should not be conflated with NSFAS’s existing repayment options.
NSFAS currently offers a payroll deduction option, which allows students who have entered repayment to make arrangements with their employers so that their NSFAS loan instalments are deducted directly from their salary.
This is different from a situation where graduates’ salaries are automatically deducted by SARS.
A mandatory system through SARS would require appropriate legislative and administrative oversight to ensure that deductions happen only when stipulated.
The NSFAS funding crisis
The issue of graduate repayment comes as NSFAS grapples with a massive funding shortfall.
The student aid scheme is R15 billion in deficit and faces considerable pressure to ensure that its funding is utilised in a way that supports future students.
The costs of subsidising students have increased to the point where the government now needs to reconsider both sides of the funding equation – how much is given to students and how much is required from graduates.
With the right mechanisms, more money could flow back into the student aid system and reduce the pressure on the public budget.
Explaining support for income-based repayment
The most obvious reason why many people support income-based repayment is that graduates’ financial situations vary enormously.
While some graduate debtors will secure well-paid jobs, others will be unemployed or earn very little immediately after leaving university or college.
A repayment method based on income can differentiate between these categories of graduate and set payment schedules accordingly.
Supporters also note that automatic deductions or more structured repayment options would reduce the number of graduates who fail to repay simply because they fail or refuse to make voluntary payments.
South Africa’s graduate unemployment problem
Graduate unemployment is a serious issue that any repayment system based on income has to grapple with.
South Africa’s graduate unemployment rate remains high even as economic growth picks up.
Not every graduate is immediately employed after completing their studies at a public university or TVET college, and many earn very little for a prolonged period.
This is why a repayment system based on income is potentially different from a system requiring a certain amount of repayment for every student. The key consideration is whether the graduate can afford to make payments.
Income thresholds, which would indicate when graduates are expected to start repaying their student loans, have to be discussed if such a system is to be introduced.
Universities and student debt
Universities also have outstanding student debt from graduates, which constrains their budgets and their ability to provide services.
The Portfolio Committee on Higher Education has noted that improved reconciliation processes between universities and NSFAS are needed to improve the management of student funding.
The concerns around graduate repayment therefore cut across the higher education sector and touch on budgetary and administrative reforms.
What this means for students
Students who currently receive NSFAS funding should take comfort in the fact that none of them will be required to make immediate repayments through an automatic deduction process from their salaries.
They should make sure to update their personal details with NSFAS, as normal repayment terms apply.
Graduates who have outstanding NSFAS student loans should take advantage of the existing repayment options and seek clarification from NSFAS if they intend to make changes to their repayment plans or dispute their liabilities.
What happens next?
The student loan repayment debate is likely to continue as South Africa seeks to improve the sustainability of its financial aid system.
NSFAS could introduce revised student repayment terms and better tracking of graduates who must repay their student loans.
Reforms will require improved coordination at government level as well as updated administrative systems at universities and other higher education institutions.
That said, no graduate should assume that their salary will automatically be deducted to repay their NSFAS loan unless such a system is introduced and announced by the relevant authorities.
Explaining why this story matters to students
Recovery of student loans from graduates is a matter of concern to current and future students, because NSFAS plays such a crucial role in funding higher education in South Africa.
Recovery of repayments from graduates who can afford to pay will cushion the NSFAS budget and allow the fund to support more students.
At the same time, student loan repayments from graduates must be structured so that they can meet their financial obligations.
Source
This article was published in response to queries around NSFAS student loan repayments and contains information sourced from reports around NSFAS and student funding in South Africa, as well as information from national government and parliament.
NSFAS student loan repayment proposals are often discussed, but none of them have been implemented yet.
Our editorial policy
Our education and careers writers aim to provide students, graduates and parents with accurate and informative content to help them make informed career and education choices.
Where there are competing views, we strive to report these factsually and accurately.
We distinguish between what has been officially stated, what NSFAS currently does, and what is being proposed by government or other entities. We do not report proposals as if they have been officially adopted.
Weights and measures are used appropriately in discussing student loan repayments and funding.
Disclaimer
This article is for informational purposes only and should not be regarded as an official statement from SARS, NSFAS or government about student loan repayments.
The idea that SARS would deduct student loan repayments automatically from graduates’ salaries is not necessarily an official position.
Students should therefore update their personal details with NSFAS to ensure that they are able to make repayments in line with their financial ability. Any queries about individual student funding must be directed to NSFAS.
Student and graduate awareness
Graduates with outstanding NSFAS student loans should ensure that their contact and employment details are up to date with NSFAS.
They also need to make sure that they meet their funding obligations, which can be exceptionally difficult in the short term after leaving university or college.
Students should be wary of social media posts that claim that SARS has started deducting NSFAS repayments from their salaries. Any queries should be directed to official channels.
