The University Funding System

This brief is the second in a series on university finance. The first was titled “Principles of student financing 101” and it can be found on the HSF website ( This brief sets out the structure of university funding and considers the rising cost of university education to students as a whole.

Universities are key to developing a nation. They play three main functions in society. Firstly, they educate and train people with high-level skills for the employment needs of the public and private sectors. Secondly, universities are the dominant producers of new knowledge. Universities also set norms and standards, and determine the curriculum, languages and knowledge, ethics and philosophy underpinning a nation’s knowledge- capital. South Africa needs knowledge that equips people for a society in constant change. Thirdly, given the country’s apartheid history, higher education provides opportunities for social mobility and simultaneously strengthens equity, social justice and democracy. In today’s knowledge society, higher education underpinned by a strong science and technology innovation system is increasingly important in opening up people’s opportunities. (National Planning Commission 2012:262)


This brief is the second in a series on university finance. The first was titled “Principles of student financing 101” and it can be found on the HSF website (

This brief sets out the structure of university funding and considers the rising cost of university education to students as a whole.

Figure 1 sets out the structure of the system as a whole and it indicates the size of projected financial flows for the fiscal year 2016/2017, based on the Ministerial Statement on University Funding 2015/16 and 2016/17, published in November 2014. The total government budget in support of universities is projected at just under R 32 billion, with 68% going to block grants and 32% to earmarked grants. Universities are free to spend the block grants in pursuit of any legitimate university purpose. Earmarked grants must be spent for the purposes for which they are designated. The block grant has four components, driven by different things:  

  • the teaching input grant based on agreed enrolment targets between the Department of Higher Education and Training and each university; 
  • the teaching output grant based on graduates from non-research certificate, diploma and degree programmes;
  • the research output grant based on graduates from research Master’s and doctoral programmes, and accredited publications;
  • the institutional grant which helps small universities with relatively high overhead costs and with a high proportion of disadvantaged students.

The earmarked grants are for a number of purposes. The biggest grant goes to the National Student Financial Aid Scheme (NSFAS) which offers loans to students otherwise unable to finance their studies.  Infrastructural grants are the next biggest category, with the two universities in Mpumalanga and Northern Cape requiring about a third of total infrastructural grants.  Next in size is the Teaching Development grant, designed to support activities which lead to student success and the Historically Disadvantaged Institutions (HDI) grant specifically focused on eight institutions. And there are a number of small grants, as indicated in Figure 1.

Funded student enrolments are rising rapidly. They are projected to increase from 1 222 348 in 2015/16 to 1 362 140 in 2018/19, an average annual increase of 3.7%, faster than implicit in the government goal of 1.6 million enrolments in 2030. This is projected at a time when gross domestic product is not rising nearly so fast.  Moreover, it must be borne in mind that government funding of universities in aggregate accounts for less than half of their expenditure. In 2014, universities had cash receipts from operating activities of R 60.6 billion in the calendar year 2014, of which R25.4 billion came from state grants.

The rising private cost of education

Figure 2 below depicts education inflation figures; this is based on fees charged by schools and tertiary institutions. The most recent figures show that the cost of education rose by 9.3% in March 2015 compared to March 2014. The figure below shows that education inflation has constantly outstripped general inflation by 2.5% in 2009; 4.6% in 2011; and 3% in 2013. Education inflation has also exceeded the rise in household consumption in every year except 2011. The ratio of the private costs to household consumption has been rising, putting pressure on poor households in particular.












Source: Statistics South Africa, Education costs continue to outstrip inflation, Brief,  22 April 2015 

It is against this backdrop that student protests should be viewed.  It should be noted that rising real costs of higher education are not peculiar to South Africa.  Education is a labour-intensive activity which offers fewer opportunities for productivity gains than are available in, say, manufacturing.

Government support of higher education

Government spends 0.8% of Gross Domestic Product (GDP) on higher education, close to the average in other African countries (0.78%) and the world as a whole (0.84%).  This figure is low compared to OECD countries (1.21%), but the proportion of the young in higher education is much higher than in South Africa. On the other hand, higher education expenditure as a percentage of overall education expenditure is only 12%, compared with 20% in Africa; 23.4% in OECD countries and 19.8% in the rest of the world.  An increase in government’s university spending as a proportion of GDP would be appropriate, but there are fiscal constraints on how fast it can rise. 

What can be done now?

The President announced an agreement on 23 October that universities would not increase fees at all in 2016. Given that universities intended increased fees, this leaves holes in their budgets. The universities have lost no time in raising claims for relief from the government. The amount involved has been estimated variously at between two and a half billion and four billion rand. In considering these claims, the government needs to use a sharp pencil, especially since more money needs to be put into NSFAS as well. The Wits report of 25 October stated that:

The University administered R277 million on behalf of NSFAS, Thuthuka and FUNZA, of which NSFAS funds are R179 million. Approximately 900 students who were eligible were not awarded funding due to a shortage of funds.  

The pattern of NSFAS running out of money is found in other universities. It is inequitable and it wrecks planning by households for the financing of university studies. If it continues, we can expect a rough start to the next academic year. There needs to be money for every student that qualifies for it. The package of support needs to be tailored to the number of students in most need and the aggregate sum which can be advanced. Some want NSFAS to become a grant scheme, with its loan book written off. Given that this will diminish the flow of funds into NSFAS in succeeding years, this demand has to be treated with great caution.  

Results are needed by the end of January. This means that the government has to commit now to the additional resources to be made available to the universities and NSFAS. Improvement in NSFAS is the most urgent task facing the Department.  


More generally, the system has to be considered in all its aspects together. These range from the supply of National Senior Certificate passes, the incomes of households with students, the growth in university places available, the strategies available to universities, to DHET and Treasury policies. It is an integrated system and must be dealt with as such.  The attempt to make the recent protests the Vice-Chancellors’ problem was misplaced. It encourages individual actors to try and patch the system from their point of view, with adverse unintended consequences for the system as a whole.  

The entire system is under great financial pressure. Nobody is going to get everything that they want. In particular, the wilder student demands will inevitably founder on the budget constraint. The task is to do better with what the government can provide, subject to all the other expenditure claims on it. The third brief in the series will consider longer term options for dealing with the issues.

Anele Mtwesi

Charles Simkins
Senior Researcher

Francis Antonie