Tuesday, June 19, 2012

Kiva Innovations: Cost-sharing for higher education in South Africa

They started lining up before sunrise -- thousands of students and their parents waiting to secure one of the hundred spots that remained in the University of Johannesburg’s incoming class. When the gates opened at 8 a.m. and unclaimed spots were filled, a stampede ensued, injuring dozens and killing the mother of a prospective student.

This may be a dramatic example of the challenges countries face in expanding higher education -- but it’s also representative of troubling trends.

This year, more than 80,000 students applied for 11,000 slots at the University of Johannesburg in South Africa. At the same time, the city’s Further Education Training (FET) colleges had more than 50,000 vacancies in their technical programs.

A technical degree is not a highly valued commodity in South Africa. With the jobless rate among young people hovering around 70%, competition is so intense that companies are only interested in hiring graduates with the best credentials and work experience. As a result, more than 600,000 college graduates are currently out of work.

This is common throughout the developing world. Budget constraints have reduced spots at public universities to the point where admission is extremely competitive. To increase their chances of being accepted, students often take years of private courses to boost their scores on entrance exams.

These courses don’t come cheap, and neither do the private high schools that run them. So, the system perversely rewards the most educated -- who are also the most wealthy -- with free tuition, while most lower-income students never had a shot to begin with. Read more about the poverty-education cycle in a past blog on the topic.

In South Africa, only 15% of college-eligible students go on to pursue university-level degrees. Limited access is strongly concentrated among the black population and, more generally, in lower-income communities. This has been a volatile issue, as post-Apartheid governments have made promises to improve access to higher education for historically disadvantaged groups. Yet, time and time again this pledge has been stymied by rising per-student costs and shrinking budgets.

Tuition Addition

In 2005, tuition fees at South African public universities ranged from $2,575 to $7,385 annually. When adjusted for purchasing power, these fees equal approximately 70% of average GDP per capita. At this rate, families and students are currently paying tuition and fees equal to 25% of the government’s total education budget. Add on taxes, and this number becomes nearly prohibitive for most South Africans. Still, alternative financing options are not available.

The government has instituted a wide-ranging student loan program meant to make cost-sharing more palatable. The National Student Financial Aid Scheme in South Africa (NSFAS) awards means-tested loans to students and parents to help cover a portion of their higher education fees. As of 2006, this program was serving 15% of all public university students, of which 98% came from disadvantaged groups.

Commercial banks constitute an alternative source of financing, also offering student loans. But stringent requirements for loan approval make it so that only the wealthiest families can apply. The rest are forced to seek out informal moneylenders who charge very high interest rates, usually upwards of 40% to 50% annually.

In short, access to financing remains a remote possibility for many low-income students that want to go to college.

Complex equations

The movement away from fully-subsidized education fuels potential for innovative models to address financial shortfalls. Some private schools have developed unique loan products to give disadvantaged students access to college. These programs have sought to combine cost-sharing mechanisms with realistic repayment schedules to extend financing to disadvantaged students.

In South Africa, schools have created flexible curricula to provide useful experience that gives students a leg up on the competition after graduation. One potential Kiva Field Partner combines undergraduate studies with part-time work opportunities, where students work to earn wages to pay for living expenses and acquire work experience. With employers unwilling to train new hires, the prospect of working while in college becomes a rare and valued commodity. In addition, much like work-study in the United States, the program helps students pay off their loans more quickly.

For years, many South Africans have had to literally push and shove their way into the best universities. Now, innovative programs are sprouting up to challenge the status quo and provide real solutions to the complex calculus that is the broken public university system.

At Kiva, we are working to help disadvantaged students go to college in South Africa and across the globe.

Ian Matthews is an intern on Kiva’s Strategic Initiatives team, looking for new partners and loan products to extend opportunities and access to even more people around the world. Ian has an MSc in Global Politics from the London School of Economics and Political Science and has previously done field work in Honduras. Send him your feedback on this blog series at blog@kiva.org.

This is part of a larger series on Kiva’s strategic initiatives and innovative loan products, which are designed to expand opportunities for more borrowers. Kiva is excited to partner with schools that provide loans to disadvantaged students all over the world.