The actual cost of NOT providing free education

Garden boy to vetFees must fall, yes #feesmustfall! I actually planned this month’s blog post on a play on words regarding investment fees which must fall, over University fees which (also) must fall, but to be quite honest the University fees falling probably has as big if not a bigger impact on us than investment fees, so I’ve bumped that post on to another time.

So, let’s look at what the impact is of the whole University fee issue. You see, the students are rightly upset that they have to pay far too much in University fees. The government on the other hand is saying there just isn’t money to give free tuition, and they right, it’s pretty hard to find money when you’re throwing so much of it away on things we really don’t need, like the arms deal, nuclear power stations and of course Nkaaaanndla.

I know I’ve said it before, but for some reason it just seems that governments don’t understand basic finance. Firstly you need to make sure you spend less than you earn, and then you need to invest some of the difference. It’s my belief that the #feesmustfall movement is simply the governments lack of understanding around making an investment in it’s future. Delaying gratification now for huge rewards in future is ground zero for investing.

As you might already know, I like numbers, so let’s look at an example:


Naomi is a young girl about to finish school in the Eastern Cape. Unfortunately for her, she lost out on the birth lottery, and came into this world to join a poor household. Now say what you like about hard work, a good mind, or any of the other aspects to a person, your chances of having a successful life are far, far lower when you start off in a poor household.

Think of it as trying to throw a basketball through the hoop, only being born poor means you have to throw from 10 meters further back than someone who wasn’t born poor. Sure some of the poor kids might be able to get the ball in the basket, but it won’t be easy for them. On the other hand, many well off children will be able to get the ball in the basket, it’s so much closer to them and therefore so much easier. In life, the odds of being successful are pretty similar.

So while the odds against someone poor succeeding are pretty slim, it’s even worse if you’re from the Eastern Cape. You see only 65% of people who wrote the matric exams in that province passed. The percentage that passed with an exemption to go to university is way lower, just 20%. That puts our hard working Naomi into a very small group of successful scholars.

Without any funds for her to go to a University, Naomi would currently need to try and find a job. The Eastern Cape is a province with a 29% unemployment rate, but that’s the overall rate. Naomi’s chances are actually significantly lower than that. If you separate the youth out of the overall group, the percentage unemployed is actually 63.1%.

For someone like Naomi, who has no work experience nor any tertiary education, it’s a fair bet to imagine that she will not find a job, and will become one of the many young people in South Africa who will eventually end up costing the government money through various forms of social grants. Even in the rare case that she possibly was able to find some type of unskilled work, it’s likely that she wouldn’t earn enough to be a net tax payer, and would quite possibly still require a social grant, just like sixteen million other South Africans. It’s not much of a stretch to assume that Naomi would have two children and therefore be a beneficiary of the current grant, adding up to R660 a month. Over an 18 year period, increasing the grant for inflation, she’d end up costing the government R244 772,77 in child support grants. Then on reaching 60 years old, she would draw a government pension of R1420 per month, and assuming she’d live to 80, it would cost the government an additional R626 826,47 for a total of R871 599.24. This is also ignoring any other indirect costs such as state medical or RDP house etc.

On the other hand, if we had a government with some forward vision, things could be completely different. Naomi could be given free tuition to study in a field of her interest, which as she is gifted with numbers just happens to be accountancy. Having come this far, she’s likely to be very motivated and would work hard to graduate, after which she is far more likely to end up in a career. In fact figures show that for someone with a tertiary education, the unemployment figures are drastically reduced to just under 10%!

As careers progress, and increases are given, she would likely very soon repay the governments tuition grant in taxes. Continuing to be more successful, it’s likely that over the course of her career, she’ll and up paying many times what her tuition costs.

Naomi was happy to receive a rather average salary in her first job. Articles don’t pay very well, her starting salary was just R8000 a month. From that, she would pay R4023 in taxes in her first year. Still a long way from paying back the R300 000+ in fees sponsored by the government. That was only her first year though. If we assume a 28 year working career taking her to 60 years old, and an ultimate salary high of R50 000 a month, which to be honest is probably quite conservative given the potential salary in her field, plus her previously disadvantaged status, she could quite possibly end up earning far more.

So what would she ultimately pay back in taxes if her career followed that path? Well here’s the table, note I’ve removed inflation from the numbers to give the answers in today’s Rand:
Naomi's taxes
As you can see, the potential cost of not offering free tuition is significantly higher than that of offering free tuition. To be more accurate, we need to add the R871,599 which would have been spent on social grants, and if we conservatively assume that she spent 20% of her take home pay on items requiring VAT, that would add another R217,328 to the total. That leaves us with a dead loss of R3,068,870 for not providing free education! In other words, it’s ten time more costly not to drop the fees than it is to keep the fees. That’s why my suggestion to the government is to seriously consider offering free tuition. Not only for the sake of the potential students, but for the sake of our economy. Otherwise I’m really not sure where we’ll find the extra three hundred and sixty eight million hundred and seventy eighty thousand rand and ninety needed in our budget in a few years time.

If you wanted to play devil’s advocate you could actually consider that perhaps the government is aware of this. After all, our government only spends 12% of our education budget on tertiary education. This is way lower than the global average of 19.8%, and lower still than the African average of 20%. There could be a bunch of reasons for that, but could it be perhaps that people who enter Universities are probably highly likely to ask questions about bad governance, and maybe even shock horror, vote for party not based on tribal or historical grounds.

If that’s the case then the move has completely backfired. For once it seems all sectors of society are highlighting governments failure as a single voice. It will be interesting to see next year if the votes reflect this. I have a feeling it just might.

Should we provide free tertiary education?

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  • Tariq

    How would this free system handle those who fail?

  • Other.

    Should be free to those that pass.

  • I really wanted to go along with CeeZedCee’s suggestion of paying for all those who pass. The only issue I have with it was that I failed my first semester! The first one is tough, nobody asks you to study, or checks up on any work. I took it far too easy. That was the last time I failed anything though, and I made damn sure to do enough work to pass from then on. In fact I ended up with many distinctions, and obviously since then have paid the government a fortune in taxes.

    I guess I don’t have a good answer, perhaps students are allowed one chance, and then as CZC says they have to pay their own way after that.

  • konfab

    All this is based on the premises that a university education automatically means they will get a job.

    You need a working economy in order to absorb the people coming from school and university, otherwise all you will end up with is unemployed graduates, most likely with drama degrees.

    Governments have to (I hope) think on a larger scale than one person. Student loans are the fairest and most sustainable way of doing financing. And to address the concerns of the previous commentors, I would base the interest rate on how the degree was passed. If everything was passed with a cum laude, then the interest rate drops, if you failed a few modules it increases.
    If you have to take more than one extra year to finish your degree you don’t qualify for funding.

  • “All this is based on the premises that a university education automatically means they will get a job.”
    True, the odds are in the favour of graduates, with the unemployment rate dropping from 63% for non graduates to 10% for graduates.

    “I would base the interest rate on how the degree was passed. If
    everything was passed with a cum laude, then the interest rate drops, if
    you failed a few modules it increases.”
    That’s a really innovative idea, great lateral thinking there. It’s the type of ideas we need in government.

  • MoneyChief

    There are a couple of problems with free education.

    1. People will go and study useless degrees just because they can.
    2. Universities will pop up left right and center to cater to students studying useless degrees.
    3. Standards will drop because students will not be careful about their choice of degree because they don’t have to pay for it themselves.
    4. The government will go bankrupt paying for stuff it cannot afford sinking the whole ship. Naomi with it.
    5. The value of degrees will go down due to degree inflation cancelling out any gains made getting more people to study degrees.

  • Good points MoneyChief. Perhaps a proposal Obama is trying to push through regarding free education in the US will be useful. They have a minimum grade point average which needs to be met. In their case it’s a C+. For point 2, I don’t think government should fund any tertiary institution, but only governments ones, ie the current universities and technicons. Point 4 is pretty much unavoidable until we get a decent government. I’m hoping it’ll happen sooner rather than later!

  • I plan to use this with my son when he start studying. I’ll pay for every course he passes, he needs to pay for those he doesn’t!

  • Charlie

    Free to those who do well academically – and i don’t mean distinctions in all their subjects – but you should perform reasonably above average.
    Say what you want but not everyone has the aptitude to become doctors, lawyers, engineers, CA’s etc.
    Perhaps in areas where there are genuine shortages of expertise the government should provide funding. But it should be application based (and even this will likely turn into some BEE previously disadvantages kind of bull$$& based on skin colour and not looking at actual disadvantaged individuals regardless of ethnicity)

    Also if it is free what drive will you have to actually pass every subject and complete your degree in the minimum time?
    Nothing would stop you from constantly hopping from degree to degree and failing one subject after the other costing the government just as much money.

    With proper regulation and limitations in place it could work, but honestly we have bigger problems with basic education.
    Tertiary education is a privilege not a right.
    One i personally payed for and am still paying for through a study loan. And i was a A-grade student – dux learner, provincial top ten and golden key.

    Life is not fair, sometimes you have to work hard for what you want.
    But we are dealing with a lazy nation that find it easier to play the blame and complain game.

  • Lupa

    Other – as in free-ish with some checks and balances

    1) Control over which institutions will be funded – to avoid “private college” leeches
    2) Only certain programs funded – to avoid producing massive numbers of graduates with useless degrees. This one will be tough to police as everyone will insist that their field is meaningful and beneficial to society and will argue that their program should be included, no matter how arcane and nebulous.
    3) There needs to be similar investment in training of artisans, academic skills are not the only skills that a healthy economy needs.
    4) Payment linked to academic performance in much the same was as most bursaries work already – incentives for better performance would be good too. There would also need to be some kind of system to stop people from chopping and changing their degree program willy nilly. As someone pointed out below existing student loan models could be used, although I don’t think this has worked out so well in the US…
    5) Possibly means tested, although I’m a little wary as this might end up with the middle class getting unfairly squeezed, and any means testing has to be on purely economic grounds, no race/gender/religion nonsense.

    Also as Charlie noted below, trying to fix tertiary education while most South African’s don’t get a decent basic education is foolish, getting the bulk of our population a good basic education should probably be the priority.

  • Agreed, especially with point number 1. I read that if we just offer UNISA free we can cover 90% of students with just 30% of our total costs.