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Education Research Report 2009/10	Report of the Ministerial Committee on the Review of the National Student Financial Aid Scheme	Higher Education Monitor - The State of Higher Education in South Africa

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• those regarding the establishment of new student financial aid models for both higher and further education; and
• those to correct shortcomings identified by the Review Committee in the current NSFAS operation to improve and enhance its activities and performance and facilitate a smooth transition from the current to the proposed new models.

• 1. New higher and further education student financial aid models
  • The Review Committee firstly recommends the adoption of the new models for financing higher and further education explained in Parts 3 and 4 of this report.
  • In brief, the Committee recommends a higher education student financial aid model that progressively provides free higher education to undergraduate level for students from poor and working class communities. The model also provides student loans on favourable terms to higher education students from lower middle-income families.
  • In addition, the Committee recommends the adoption of the proposed further education and training (FET) student financial aid model, which provides fully-subsidised bursaries for all National Certificate (Vocational) (NCV) students at FET colleges.
  
  
• 2. Policy development
  The Review Committee recommends that a comprehensive policy framework should be developed to articulate the detail of the national policy imperative of providing free higher and further education.
  
  
• 3. Changes to NSFAS
  This sub-section sets out the recommendations flowing from the Committee's findings on the current operations and activities of NSFAS. They are broadly directed at rectifying shortcomings identified by the review and at aligning NSFAS's practices and performance with national higher and further education policies.
  
  
  • 3.1 Legislation
    • The Committee recommends that the NSFAS Act should be amended to comply with the Constitution of South Africa (Act 108 of 1996) and the National Credit Act (NCA) (Act 34 of 2005).
    • In particular, Section 23 should be repealed from the NSFAS Act as it forces employers to collect student loan repayments from employees' salaries and pay these directly to NSFAS without the permission of the employee. The Committee concurs with the opinion provided to NSFAS by its Senior Counsel (and subsequently supported by the National Credit Regulator) that Section 23 of the Act offends against Section 34 of the Constitution, which guarantees the right of access to the courts. Counsel's advice was that the Constitutional Court would be likely to strike down this section of the NSFAS Act if it were to be considered by the Court. Counsel also advised that this offence against Section 34 is incapable of being justified in terms of Section 36 of the Constitution, which deals with the limitation of rights.
    • In the meantime, the Minister and the Department should on constitutional, legal and moral grounds, instruct NSFAS to immediately stop all loan recoveries in terms of Section 23 and to refrain from using the provisions of Section 23 in its debt recovery practices. The Committee found that borrowers against whom Section 23 is used constitute a relatively small minority of 10 percent from whom NSFAS is currently recovering loans. The majority of those repaying do so voluntarily.
    • The Committee further recommends investigating the introduction of a constitutionally compliant section of the NSFAS Act to enable NSFAS to recover loan repayments directly through the taxation system. In this regard, attention is drawn to Section 10.3.4.7f of the recommendations.
    • In relation to composition and performance assessment of the NSFAS Board, the Act should be amended to provide for removal of board members by the Minister. The NSFAS Act currently provides no mechanisms for removal of board members, even in cases in which there are compelling grounds, such as non-performance.
    
    
  • 3.2 Governance
    • The Review Committee recommends that the board should be restructured and strengthened to ensure that it is able to perform its duties in terms of the NSFAS Act. In recommending this course of action, the Committee has taken into account its findings of the board's responsibility in relation to policy development and oversight, and the governance weaknesses identified in the independent governance audit contained in the Committee's report.
      
      The legal advice to the Committee from the legal adviser in the Department of Higher Education and Training (DHET), confirmed by the chief state law adviser, is that the Minister does not have the power to remove the board and appoint a new board. The NSFAS Act provides only for the appointment of board members by the Minister and is silent on the powers of the Minister to remove appointed members. According to the DHET's legal adviser, the only power the Minister can exercise is the power of persuading individual board members to vacate their positions.
    • The Committee therefore recommends that the Minister should call a special meeting of the board in terms of Section 13(1) of the NSFAS Act to discuss the board's performance. In addition, the remaining members may make use of the provisions of the Act to co-opt additional members who would contribute to the effective governance of NSFAS for the remainder of the board's term.
    • In conclusion, the statutory and discretionary subcommittees of the board should be reconstituted so that they are able to perform the fiduciary duties anticipated in the NSFAS Act. In particular, the board executive committee should be strengthened to function as contemplated in the Act, taking on much of the responsibility for ensuring good corporate governance and operational efficiency.
    • Given that the board has fiduciary responsibility for substantial amounts of funds, it should ensure that the scheme is fully compliant with the provisions of the King reports, with specific emphasis on the Code of Corporate Practices and Conduct. In this process, due attention should however be paid to the non-commercial nature of NSFAS and the need to appropriately adapt the King recommendations to suit the manner in which NSFAS should operate.
    
    
  • 3.3 Management
    • The Review Committee recommends that a capacity and skills audit should be commissioned at the earliest opportunity. The audit should assess the capacity of existing NSFAS senior managers and managers to supervise the current NSFAS operations, to manage the transitional arrangements and to oversee implementation of the new policy framework. Recommendations should be made to strengthen capacity.
    • A multidisciplinary turnaround team should be appointed on a short-term contract to facilitate the transition from the current operational environment to the proposed new NSFAS structure. This team, probably consisting of three or four members, would work with the restructured board and board executive committee to implement the immediate and short-term recommendations identified in the review report.
    • The Committee also recommends that a number of senior management appointments should be made in line with the findings of the recent Governance Audit and aligned with the anticipated outcomes of the capacity and skills audit. These include, but are not limited to, a senior credit manager.
    
    
  • 3.4 Operations
    Certain key operational aspects of NSFAS need to be revised from the following areas:
    • Nsfas Policy Development, Strategic, Operational Plans
    • Central Applications Process
    • Allocation Formula
    • Means Test
    • Respective Roles And Responsibilities Of Institutional Financial Aid Offices And Nsfas
    • Loan Administration And Interest
    • Loan Recovery And Credit Blacklisting
    • Bursary Administration
    • Unutilised Funds
    • Marketing And Communication
    • Academic Support
    • Physical Infrastructure
    • Nsfas Administration Budget
    
    
  • 3.5 Systems
    A full review of the functionality, effectiveness, appropriateness and efficiency of all NSFAS systems should be undertaken as part of the activities of the turnaround initiative referred to in 10.3.3 above. The systems identified below are among those which require immediate attention.
    
    
  • 3.6 Mechanisms for raising student loan funding
    The Review Committee recommends that the only viable source of raising the required funds for student financial aid is through government funding on a sustainable basis for the short-, medium- and long-term future. This recommendation is based on investigations into the parameters of the recapitalisation of NSFAS and into the possible establishment of a student loan bank.
    
    The idea of a student loan bank has been raised as a possible conduit for private sector funding of a national student loan scheme. The NSFAS project included, from the beginning, several inherent concepts that clash fundamentally with the concept of a for-profit or fullcost- recovery operation such as a student loan bank. Primary among these is the "hidden subsidy" built into NSFAS through the Repurchase Rate-linked interest charged on NSFAS loans and the loan-bursary conversion academic incentive. These translate into a repayment ratio ¡V the total recoverable by the scheme under optimal conditions ¡V of slightly over 50 percent of total loans made by NSFAS. NSFAS was thus conceptualised and is currently structured to recover only half the funds it disburses. This makes it anathema to a full-cost-recovery or for-profit operation which, by its nature, must seek to recover more than 100 percent of the funds disbursed.

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