In the years to come, when asked what the defining moments of 2015 were, the answer is likely to be Nenegate and #FeesMustFall.

Student protests across the country succeeded in forcing the Department of Higher Education to promise that university fees for 2016 would not increase.

Part of the bitter fight concerned the government’s National Student Financial Aid Scheme (NSFAS) and the fact that it supports only the poorest students. Those students who don’t qualify but their parents couldn’t afford to fund their studies, are left destitute.

NSFAS gives loans only to students whose family income is lower than gross R 120 000 per year. This is a gross monthly income of R 10 000. Given the high unemployment rate and other pressures in a depressed economy, a child’s university education may not be a priority.

Assistance is given to students who have the academic potential to succeed at university and who qualify in terms of the means test for financial aid.

NSFAS issue loans without requiring guarantees or sureties from parents or guardians.

Loan repayments only start once the student is earning a salary and that salary is R 30 000 or more per year (R 2 500 per month). The repayment rate is 3% of the annual salary, increasing to a maximum of 8% when the salary reaches R 59 300 or more per year. This means that R 900 a year will be paid on a salary of R 30 000 a year or R 84 per month. The interest charged on the loan is subsidised at 80% of the rate that the commercial rate banks would charge.

The NSFAS Act 1999 allows NSFAS to have employers deduct loan repayments from the monthly salaries of those who’ve been assisted by the scheme. About 20% of NSFAS recipients have never repaid any amount.

SARS has identified about 500 000 beneficiaries who are employed and earning enough to start servicing their debt, but they have yet to pay back R 6 billion of the total R 21 billion outstanding debt to the scheme some of which does back 17 years. In the past financial year NSFAS was only able to recover R 248 million.

They can’t be blacklisted – legal process and debt collection is the only recourse.

In 2013, NSFAS was owed R 15.6 billion in unpaid loans. Given this and the fact that South Africans are notoriously financially undisciplined, NSFAS owes it to taxpayers to use the law at its disposal to deduct amounts owing from salaries and to remind ex-students that they received the benefit of a loan and undertook legally to repay it. The culture of entitlement must be vehemently discouraged and replaced with a strong sense of obligation to pay for tertiary education. (See Student Freeloaders by Shenaaz Jamal, The Times, 22 January 2016)

In all the drama, however, the banking sector has been very quiet.

A cursory glance at the student loans offered by FNB, ABSA, Standard, Nedbank and Capitec, the general criteria for a student loan are that the student must:

• be over 18
• have a guarantor, someone who earns R 6 000+ per month
• be registered with an SA tertiary institution

To apply for a loan a student needs:

• a copy of his/her South African ID/smart card
• a copy of the guarantor's South African ID/smart card
• 1 month's payslip /4 month's payslips (if paid fortnightly/weekly) of the guarantor
• proof of registration

One bank requires students to earn a minimum monthly income of R 3 000. It approves the loan based on their affordability and risk profile. Proof of income from the person undertaking the study loan is required

Another requires the guarantor to be responsible for interest repayments during the course of the studies. It also requires:

• an income and expenditure statement
• an invoice/statement of fees owed from tertiary institution
• an invoice of other study-related costs (if applicable)
• a cohabitation form obtained from a branch (FICA)
• proof of life insurance cover in case of death or disability
• marital status declaration

In order to qualify the bank requires the guarantor to have their main transactional bank account with the bank.

A third bank offers a repayment period of between 2 to 84 months (7 years). The loan is based on the applicant’s credit profile.

For a student, these loans are just not an option. Many students don’t have guarantors; they have no credit history and they certainly won’t be able to repay a loan before they start earning after studying.

Understandably, banks need security when they lend money and they need to minimise their risk. But requiring working and middle class students to earn an income as a guarantee against a student loan, or require a third party guarantor to provide security against a student loan, means that the private banking sector is not going to contribute much to the crisis of funding tertiary education.

All the banks charge interest; some requiring repayment of interest during the study period.

In the 1970s, student loans were interest-free, repayable only once an income was being earned and the repayment period was twenty years or more.

One of the great benefits of granting these loans for banks was that the student’s first bank usually became a bank for life. The bank then benefited from the erstwhile student’s financial rise, which should more than make up for the original student loan.

Presumably, the increase in student numbers, the lack of collateral and the high drop out rates pose huge risk for banks. So too is the appalling state of the economy which makes employment increasingly less likely.

But can’t the banking industry look at a range of creative measures that make loans to students more real?

One possibility is giving loans to students from second year only; only once they’ve passed first year.

Another is to oblige the student to attend a session/s on budgeting and debt management before the loan will be granted. This country is in crisis over our poor saving rates and people becoming enslaved by loan sharks.
Early advice would help with repayment of the loan. It would also help to make the student more fiscally prudent once earnings have to be managed.

Banks should not feel reluctant to bind students contractually. Students have to learn a sense of obligation to the institutions of society. Legal action and garnishee orders must follow on default.

There must be more and better ideas. Creative thinking is needed to deal with this crisis. And it would do no harm for the banking sector to improve the image of capitalism.

Written by Sara Gon, a Policy Fellow at the IRR, a think tank that promotes economic and political liberty. Follow the IRR on Twitter @IRR_SouthAfrica.