Higher Education Funding Formula: Department briefing

Basic Education

23 August 2004
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EDUCATION PORTFOLIO COMMITTEE
24 August 2004
HIGHER EDUCATION FUNDING FORMULA: DEPARTMENT BRIEFING

Chairperson:
Professor S Mayatula (ANC)

Documents handed out:
New Funding Formula for Higher Education, 2004
Department PowerPoint presentation on New Funding Formula, 2004
Committee Budget

SUMMARY
The Committee was briefed by the Department on a new formula for higher education funding to be introduced in the current financial year. The previous formula has been in operation since the 1980s. Unlike its predecessor, which was largely market-driven, the new formula would fund higher education institutions according to how well they met national goals. Although the quality of South African graduates was high, the 'throughput rate' (the number of students who graduate, compared with the number of students enrolled) was very poor. The higher education sector had unexpectedly grown by 18% over three years and as funding has not kept pace, this trend needed to be checked. Members of the Committee did not take issue with the formula, or the policy driving it, and all questions were for clarification.

MINUTES

Department briefing
Dr A Essop and Dr N Badsha of the Department said that the new funding formula for Higher Education (HE) would come into effect this year and would replace its predecessor that had been used since the 1980s. The previous formula was largely market-driven, with some distortions. A key difference that underpins the policy framework for the transformation of HE in Education White Paper 3: A Programme for the Transformation of Higher Education (July 1997) is central planning according to national goals. The size and shape of the higher education system could not be left to market forces. Individual institutions would be funded according to how well they met broad national goals. Another significant change is that funding would not be driven by institutional costs, like the numbers of libraries or laboratories. Higher education institutions (HEIs) would be funded according to how well they met national goals but would otherwise have autonomy and discretion to fund the 'vice-chancellor to drive a Rolls'.

The HE system had grown by 18% over three years and funding had not kept pace, although HEIs continued to enrol more students to access more funds. For the next three years, the system should stay the same size to protect quality.

The HE system would be steered to meet national goals through the instruments of planning, funding and quality assurance. Planning involved the Ministry determining national policy goals and objectives; institutions developing three-year rolling plans to address national goals and objectives; and interaction between the Ministry and institutions resulting in the approval of the plans, after which funds would be released.

The funding framework has two main elements: block grants, which are undesignated amounts to cover the operational costs of higher education institutions linked to the provision of teaching and research-related services and earmarked grants, which are designated for specific purposes. The block grants consist of four sub-categories: research output grants, teaching output grants, teaching input grants and institutional factor grants.

Research funding will be determined solely on the basis of the following research outputs: research masters and doctoral graduates and publication units. HEIs whose research output was below the normative benchmark would be eligible for research development grants if their research development plans were approved.

Teaching output grants would act as an incentive to encourage institutions to put in place steps to improve their success, throughput and graduation rates. An institution whose teaching output was below the normative benchmark would be eligible for a teaching development grant on the submission of an approved teaching development plan.

Teaching input grants would be generated by enrolled totals of full-time students based on student enrolment plans approved by the Minister of Education. The teaching input grant could be adjusted to take account of special circumstances related to the teaching services offered by institutions. In the initial years of the implementation of the new framework, the teaching input grants of institutions may be adjusted to take account of the proportion of disadvantaged students enrolled by the institution, and the additional teaching input required to deal with these students' under-preparedness and the approved size of the institution in terms of its enrolments, and the economies of scale, which result from increased enrolments.

The Ministry was also committed to the introduction of an institutional factor to take into account the needs of multi-campus institutions, which would emerge as a result of the current institutional restructuring process and would, during 2004/05, undertake investigations into their operations to determine the basis for the allocation of an appropriate institutional factor.

Earmarked grants would be used for the National Student Financial Aid Scheme (NSFAS); teaching (including foundation programmes), research and community development; interest and redemption payments on loans approved and guaranteed before 1991; institutional restructuring, including mergers and the re-capitalisation of institutions and the higher education quality assurance framework.

At the end of Dr Essop's presentation, Dr Badsha added that one more round of consultations would take place before the new formula was adopted.

Discussion
Adv A Gaum (NNP) asked if HEIs would be penalised if their own goals were not aligned with national ones and for input on equity with respect to language, for instance at the University of Stellenbosch. Dr Essop said that no penalties were envisaged, although it was possible that they might be if the need arose. Equity targets for individual institutions had not been set, although demographics were tracked. Dr Badsha added that the policy acknowledged that there was a place for Afrikaans. Dr N Ndebele was looking at the role of indigenous languages in HE with a working group.

Mr L Greyling (ID) was puzzled by the decision to keep enrolment figures down despite the national skills shortage. Were the needs of the economy factored into the policy? Dr Essop said it was feasible only to look at broad needs. For instance there was currently a shortage of accountants and IT professionals but it was difficult to plan narrowly since economic needs changed and graduates sometimes worked in sectors for which they had not obviously been trained. The World Bank had punted manpower planning in the 60s and had abandoned the strategy. Some needs, such as teaching and nursing, were easier to predict as they were linked to the public service. Dr Essop said that funding to HEIs had declined in real terms and there was concern about its impact on quality. Too many students left HE without graduating because HEIs could not deliver.

Mr R van den Heever (ANC) said that staff at HEIs visited suggested that the new formula and mergers meant that costs would be doubled. He asked for input on the implicit cost-cutting. Dr Essop said that funding per individual student had actually declined because of the growth in student numbers. Some costs occurring in mergers were covered, for example the integration of IT systems but items such as new soccer kits, stationery and others would not be funded.

Mr J Maake (ANC) asked for elaboration on the numbers of students and on research output benchmarking. Dr Badsha explained that some journals were accredited if they met certain criteria, determined by experts in the field the field the journal catered for. Academics who published articles in these journals were awarded points. Similarly, books, chapters in books and outputs of masters and doctoral students were evaluated by peer Committees and awarded points.

Mr I Vadi (ANC) asked how technikons were to be funded; whether linking funding to graduate output rates would impact on quality and asked how "massification" (increased enrolment at HEIs) had occurred without being noticed. He also asked whether the system produced value for money in terms of quality assurance. Dr Essop said that enrolments actually declined in the 90s, which was one reason the increase had taken everyone by surprise. The other was that 'instruments of control' were not available - 2001 enrolments only became available in 2003 in the old formula. He added that attempts to restrict growth had led to questions about institutional autonomy being raised. Technikons were funded in the same way as other HEIs. Dr Badsha said that quality assurance needed to be strengthened by use of the mechanisms of the Higher Education Quality Committee, such as academic programme accreditation, institutional auditing of internal quality assurance mechanisms and others. There had been important developments over the last 10 years - South African graduates were often poached, because their quality was high. Some HEIs had developed enormously because of the quality of their leadership. The University of the Western Cape had identified important areas of research, biotechnology, for instance, and its students were highly competitive for National Research Foundation grants. She could give many more examples of progress made.
Ms L Maloney (ANC) said the Department should evaluate each HEI's capacity in terms of student numbers. She commented that costs were a barrier to too many students. Mr G Boinamo (DA) asked whether HEIs informed students that they could not attend if they could not pay fees. Dr Badsha said that NSFAS' budget in 1994 was R20m; this year it was nearly R1bn. Dr Essop said that the Department was planning a review of the costs of HE, similar to the one produced recently on schools.

Mr A Mpontshane (IFP) asked for clarification why Dr Essop had said that the teaching input grants 'may' be adjusted to take the number of disadvantaged students into account, instead of 'would' be adjusted. Dr Essop said that the Minister would determine the special circumstances under which teaching input grants would be adjusted and these might differ from year to year.

Dr Gaum asked how throughput rate and the role of indigenous languages featured in the policy. Dr Essop answered that throughput rates took the number of graduates into account.

Mr Greyling could not understand how the sector had grown when Further Education and Training (FET) colleges were shutting down. The Chairperson explained that they had not closed, but had been amalgamated.

Mr Vadi said that he thought that universities were supposed to report annually in terms of the regulations governing public entities. He was mistaken - universities are exempt from this compulsion, although they do produce annual reports. Dr Essop offered to do a presentation on the financial reporting system introduced in the previous year.

Mr Mayatula asked for more details on the earmarked grants. Dr Essop said that earmarked grant funds available for teaching, research and community development were R87 million for the current year, and would be reviewed annually for the next two years; grants for interest and redemption on loans granted before 1991 would no longer be needed after five years and R5 billion was available for institutional restructuring and recapitalisation this year.

The Committee voted to adopt the budget for the Committee's running costs.

The meeting was adjourned.

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