Student Debt in South Africa - Opinion

The Minister for Higher Education and Training, Dr Blade Nzimande was recently hosted for a discussion on the Morning Live - New Age Newspaper Breakfast. He generally postulated about positive strategic policy developments and propositions aimed at providing the economy with skilled professionals geared towards the growth expectations of our developing economy. Reforms in higher education, the pivotal role played by PSET and FET Colleges and other accredited institutions were lauded for their work.

While the speech presented empirical evidence of successes in the higher education sector, one glaring exception was clear – student loan debt. Policy interventions to curb the alarmingly growing student-loan debt which is crippling the younger generation of the local labour force seemed to not be a concern for the present policy makers of higher education development and reform.

The Department of Higher Education and Training receives a huge chunk of the country’s annual budget, together with the health sector among few notable ones.

And with the government having implemented a contingent student loan program (NSFAS), together with the private sector interventions like EDU Loan, much had been expected with regards to developing a new pool of skilled labour for the country growing need for expertise in various fields of business.

But the stranglehold of debt on newly employed graduates is being felt at all levels of development.

Experts say the official numbers don’t even capture the enormity of the problem and its future impact on the growth patterns of our GDP.

But research done by EDU Loan on the collective debt load upon shoulders former applicants has shown negative effects on credit illegibility of most young South Africans entering the job market.

An overall drop in consumer confidence by the banking system has left many in entangled in a web of red-tape, and underutilization of flexible repayment options such as income-based repayment by many young people has left them black-listed for durations they cannot comprehend nor contend.

Lenders of debt, auto loans and mortgages are adopting tighter credit-underwriting criteria in the aftermath of the global financial crisis. This has further denied credit to financially distressed borrowers because of their credit history, most of whom are new job seekers burdened by student-loan programs.

Question becomes, what are the effects of student loans which aren’t dischargeable in bankruptcy and are very hard to have waived on a hardship basis?

This must have a major impact on other parts of the economy.

Debt-laden graduates are barely able to cover their monthly student-loan payments, and this has meant delaying life-cycle events such as buying a car or house, getting married and having kids.

High unemployment rates have exacerbated the problem by keeping young workers’ debts unattended and thus left to accrue interest.

“Excessive student debt can slow the recovery of the housing market,” Consumer Protection Financial Bureau student-loan ombudsman Rohit Chopra wrote in a blog Young Invincibles post. “Student-loan borrowers are sending big payments every month to their loan servicers rather than becoming first-time homebuyers.”

Different global voices are expressing the outcry for debt alleviation, and a quick internet search produces headlines such as “Debunking the student loan crisis,” “Is the so-called student loan crisis one big exaggeration?”

With various reports stemming from groups such as Default: The Student Debt showing that families across the globe are simmering in debt, one is left to ask “Can Student debt be Cause of global Economic Crisis?”

And here at home, the issue is still to hit home. Or perhaps it has, because nearly 3 in 5 households are paying off student-loan debt.  A more disconcerting reality is that all groups and types of students do not carry the spiralling debt burden equally: Lower-income households, women, and students from previously underprivileged race groups are most affected by the mounting debt.

Even though is can argued that in South Africa, student debt is connected to the historical injustices of the education system, the question that needs immediate answers is: “How Bad Is It, in South Africa?”

Could this crisis be the precipice of another local economic crisis wrought with violent protestations against institutions of higher learning and debt-lenders?

It is speculated that historically disadvantaged institutions – the former black universities that often cater to the poorest – feel the burden harshly.

In their research paper titled Student loans: Liquidity constraint and higher education in South Africa, Adrien Lorenceau (Paris School of Economics) and Thomas Melonio surmised that “credit constraint seems a natural interpretation of such a situation. Higher education is costly; both in terms of direct and opportunity cost, and modest people may be unable to borrow against future income if credit markets are imperfect.”

And this is alarming when higher education has become a severe issue in this emerging country where University Enrolment is about 15%, a low figure at this level of its development. Limited access to credit, which seems a substantial reason for the situation, is strongly concentrated on the black and coloured population which is generally poor; therefore access to higher education is constrained by credit availability as loans are granted according to a credit score threshold.

Now, will the new strikers be comprised of disgruntled students of postsecondary education who were once disillusioned and concerned about economic and social stratification and now realise the lesser worth of the education they pay dearly for?

Could this situation be a consequence of deliberate policy shifts away from grants and toward loans as a tool for students financing their postsecondary education, which characterises National Student Financial Aid Schemes and their continued subservience to the local banking industry?

The constant laments about free-education were long discarded before secondary schooling curriculum was changed. Was this because the new curricula characterised a downsizing of educational costs implied by qualification requirements at tertiary level? When you don’t have students geared for science for instance, then it follows that their education would be relegated to mandatory faculties which cost lesser, but with student-loans still payable at standard interest.

The notion that education debt is “good debt” is now being put to the test as many students are incurring heavy debts for an education (art, ethnomusicology, theatre arts) that just isn’t worth it from a strictly financial viewpoint.

And as Mark Kantrowitz (FinAid.org) estimates, “collective global student debt compounded by rising tertiary enrolments, is growing by nearly $3,000 a second”, but the majority of the debt is accumulating because of an education that does not benefits society by creating a workforce that creates wealth and pays taxes.

And this observation is not to discourage development and growth in the creative and cultural sectors; which are indeed “The Golden economy” of the nation, but to solicit answers about the feasibility of emphasis on tertiary education sponsorships which only serve to imprison the bourgeoning workforce in autotomous debt accumulated through fiscally unsustainable degrees.

Several organizations are dealing with student debt in the U.S. — Allinthered.org, Occupy Student Debt Campaign, and Occupy Colleges among others, and it’s high time that South Africa undertakes secular efforts towards finding lasting resolutions to the crisis. Implementing a student union structure could be a plausible option, the solution to a debt free future for those in college now and in the future can still be found. US groups have employed crowd-funding models of eliminating the debt accumulated, for an example.

But while Government schemes are helping to inflate tuition prices and saddling young people with monstrous amounts of debt — the ramifications of which nobody made them seriously consider when they decided to take it on, young people are graduating into the slim employment pickings of the South African economy, making it even more difficult for them to pay off their investment in the long run.

Absorption of graduates into the job market could also be an essential component of relieving student debt, if the so-called unpaid internships were in effect repaying the incumbents’ debt. But this requires consensus between government, the banking industry and the corporate sector, and as it appears such a feat of philanthropy is a farfetched dream.

As much as Government-backed student loans are now seemingly accessible, defaults on those loans by graduates have simultaneously mushroomed. There are strategies that can help student loan debtors avoid default, but will our financial systems make a compromise towards deferments and forbearances, offered to skip loan payments during unemployment? Besides, who is at fault for this scourge haunting the new generation of workers? I might be wrong in assuming that lenders, including the government, are at fault, for predatory practices that make loans too easy to get and just as easy to rationalize — even though they ensnare students in debt they can never get rid of. And the media is partly to blame as well, for it has made financially sterile careers attractive to the youth, because the bulk of student loans seem geared towards non-academic courses which are glamorous while laden with unscrupulous enticement of borrowers into loans that will never be reimbursed.

Paul Zisiwe

(Images sourced from the world's web.)