University fees: The impossible trinity of higher education

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were called off for several days last week as students demanded that a fee increase of 10.5% for next year be rescinded.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.