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Department of Higher Education and Training

PROGRESS

REVIEW ON COMMITTEE REPORT

NATIONAL STUDENT FINANCIAL AID SCHEME

16 MARCH 2011

STRUCTURE OF PRESENTATION Processes followed post-submission of the

Review Committee Report State Investment in NSFAS Progress made in regard to the

recommendations NSFAS Processes

16 March 2011 2

PROCESSES

March 2011 3

ITEM DATE

Executive Summary of the Report presented to Cabinet 24 February 2010

Report released for public comment 16 March 2010

Deadline for public comments 30 April 2010

Number of public submissions received 15 (1 PHEI, HESA, NSFAS, SAUS,

NEHAWU, SASCO, CAO-KZN, FAPSA, 5

UNIVERSITIES)

Bid Submission to Treasury 28 July 2010

Second Report to Cabinet 14 October 2010

Minister’s Presentation of Bid to Ministerial Budget Committee

06 December 2010

STATE INVESTMENT IN NSFASMTEF: 2011-12 to 2013-14

Approved MTEF allocations: 2011/12 to

2013/14

2011/12 2012/13 2013/14

Baseline:Higher Education student funding Further Education &Training Colleges NSFAS administration

1 892 395

387 080

77 384

2 644 614

453 934

81 954

2 157 234

598 900

86 601

Subtotal: Baseline 2 356 859 3 180 502 3 642 735

Detail of earmarked allocations/transfers (R’000)

STATE INVESTMENT IN NSFASMTEF: 2011-12 to 2013-14

Additional funding of R1, 6 billion, R2 billion and R2,1 billion received from National Treasury for NSFAS bursaries and loans for students at HEIs and bursaries for FET Colleges over the MTEF period 2011/12 to 2013/14

Department identified additional category of funding for final year students at public HEIs who qualify for NSFAS funding – R751 million in 2011/12; R733 million in 2012/13 and R736 million in 2013/14.

Final year students will be offered the additional incentive of the award for the final year being converted to a full bursary (100 %) if they complete all the requirements for graduation in the same year.

Administered by NSFAS as a centrally-administered conduit fund and will be ring-fenced. This model will be phased in over the next few years to include students in earlier years of study. FET Colleges: full bursaries to NCV students and NATED (N1 & N2) who qualify for NSFAS

Additional funding

2011/12 2012/13 2013/14

Higher Education Institutions

751 826 733 288 736 061

Further Education and Training Colleges 848 164 1 280 900 1 389 534

Total 1 599 990 2 014 188 2 125 595

PROGRESSNew Higher & Further Education Financial Aid Models

Funding Review: the Minister for Higher Education and Training has signalled the review of the funding and resourcing of the post-school education system. It is clear that there is a link between development of policy for free education and the funding of the PSE. Final Year Programme (Universities): final year students who are financially needy and qualify for NSFAS funding will be allocated a loan for full cost of study which can be converted to a 100% bursary on successful completion of courses for graduation. It also has the advantage of improving the efficiency of the system as subsidy utilisation would be optimised. Other spin-off effects are that there could be a visible increase in graduates, incentive for 2nd years to academically qualify if they are NSFAS holders and improvement of throughput rates of the system.FET Colleges: NCV and NATED (N1 and N2) who are financially needy qualify for full bursaries with effect from 2011.Changes to Disability fund criteria as per committee recommendations

March 2011 6

PROGRESS.........cont.Legislation & Regulations

Amendments to legislation Section 23: legal process has been put in place to excise this from the NSFAS Act Board: include section to give Minister the authority to remove members – with due process

– who are not performing their functions / also insert a section where the Minister may appoint an Administrator where the NSFAS becomes dysfunctional

Regulations Once amendments to the legislation has been processed and passes, and the turn-around

strategy completed, will the regulations be drafted and affected.

Time-lines: amendments will be in effect by 2012 after going through the required processes

March 2011 7

Governance

Following some resignations, 8 vacancies exist on the Board. The process for constituting a new board is underway. A Call for Nominations was published on 21st January with a closing date of 14 February 2011. A total of approximately 61 nominations were received. The Minister will conclude process by end of March 2011.In line with the recommendations, the requisite skills as described both in King 3 and the NSFAS Act will be taken into consideration.An Executive Committee has been constituted and is taking responsibility for the day-to-day governance issues of NSFAS. On 7 January 2011 they were given a specific brief to develop a turnaround strategy and implementation plan for the organisation. This will be presented to the DHET by 31 March 2011.

March 2011 8

PROGRESS.........cont.

PROGRESS.........cont. NSFAS policy development, strategic, operational

plans

The Board approved a set of policies highlighted as gaps in the review report. These include:

Risk management policy and plan Credit policy and plan Loan recovery policy and plan

The policy development process will be completed when the new Board is appointed.NSFAS Strategic & Operational Plans: the Board submitted the NSFAS Strategic and Operational Plans to the DHET. The DHET requires revisions to both plans as it needs to be aligned to the Department’s strategic direction including addressing urgent areas which emerged from the review.

March 2011 9

Management of NSFAS

Areas not undertaken will be fast-tracked by EXCO like the skills audit

Significant and material adjustment made to the student loan book based on NSFAS management’s estimates and assumptions

Process was flawed The Auditor-General could not express

an opinion on the annual financial statements of 2009/10 and issued a disclaimer.

EXCO is currently undertaking the following:

Review of management structure Competencies required for NSFAS Immediate intervention to strengthen

financial systems and environment as well as capacity

IT person contracted Repair to LMS underway Review of calculation of interest model

and the building of the model Discontinue usage of recovered funds

for administration Compliance with NCA – work still to be

undertaken Internal audit requires strengthening –

Deloittes brought in to assist Discussion with AG re compliance to

Accounting Standards

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Initial recognition of student loans: NSFAS did not make a fair value adjustment on initial recognition to student loans as required by IAS 39. The Auditor-General could not reliably quantify the impact of not adjusting the student loans due to the unavailability of pertinent information required to estimate the fair value adjustment. Interest income and accrual: NSFAS loan management system correctly accrued interest on student loans in terms of the loan agreements and in terms of the Accounting Standard, GRAP 9. However, the accrued interest on student loans in the financial statements are recognised only when a loan repayment is initiated, and not over the term of the loan. Impairment of loans: The Auditor-General were unable to assess the reasonability of the impairment losses determined by management and could not reliably determine the valuation of the student loans.Interest income was calculated erroneously which resulted in a misstatement of R181 million which is material.Insufficient audit evidence to support a reconciliatory amount of R42 million between the general ledger and student loans in the loan management system could not be provided by the NSFAS.

ALL THESE AREAS ARE BEING ADDRESSED BY EXCO

PROGRESS.........cont. Central Applications Process

The CHE has been approached to advise on the way forward following the work done by a Ministerial Committee in 2003.The NSFAS centralised application process refers to application for financial aid in order to realise the principle espoused in the Review Report where funds follow the student as opposed to the current practice of institutional allocations.

March 2011 12

PROGRESS.........cont. Allocation Formula & Means Tests

Allocation formula (await info from NSFAS) The allocations formula for 2011 was adjusted to more equitably distribute the funding to

universities with a greater number of financially needy students.  This adjustment was performed by using the calculated average full cost of study for all the institutions, based on the actual utilisation to date per institution as a proportion of the full funding allocated for the year.  In addition, a ring-fenced portion of the re-injected funding was provided for institutions that have high levels of historic debt.

Means Test Review of this to be prioritised with the incoming Board.

March 2011 13

PROGRESS.........cont. Loan Administration & Interest; Loan Recovery &

Blacklisting

Loan administration and interest Loan book was re-valued Audit resulted in a disclaimer. NSFAS appeared before SCOPA in February 2011. Suitability of the NSFAS loan management system and IT environment is being reviewed as

well as issues related to the operational efficiency regarding debt management and complying with GRAP standards

Key Policy Changes that will be tabled for approval to the Board: 0% interest to all full-time student debtors confirmed as still studying as at 01 April 2010 Interest will only accrue 12 months after exiting an institution Other changes will be effected as well to ensure compliance with the NCA

Black-listing Names of all student debt defaulters were removed from credit bureaus

March 2011 14

PROGRESS.........cont. Unutilised Funds: Reduction of figures and funds

rolled over.

In terms of the un-utilised funding over the past three years, NSFAS has put in two key processes over the 2009 and 2010 academic years to ensure that the funding granted to institutions is fully utilised.  The first of these processes is the in-year re-distribution of funding remaining uncommitted by universities, an approval which has been delegated by the Board to the Chief Executive Officer to more effectively turn-around this funding.  The second of these processes is a much more rigorous follow-up and monitoring per institution and per funding category by the Loans and Bursaries team.  The impact is as follows:

March 2011 15

FUNDER 2008 2009 2010  GRAND TOTAL

DHET / General  R        37 475 963  R          9 528 105  R          34 907  R          80 093 933

DHET / Disability  R        11 294 336  R          3 879 354  R       200 804  R          15 374 494

DHET / Teacher  R             763 745  R          4 785 301  R       312 226  R          11 661 067

Grand Total  R        49 534 045  R        18 192 760  R       547 936  R        107 129 494

PROGRESS.........cont. Academic Support

NSFAS has contracted a service provider to conduct a cohort study on students funded through NSFAS in the years 2000 to 2004.  The purpose of this cohort study is to determine and track students who have been funded by NSFAS in these years, in terms of throughput rate, graduation rate, employability, mobility, and to discern any key trends related to policy decisions taken by the NSFAS in these years.DHET has written to all institutions asking for a strengthening of support to all students : this will be closely monitoredFaculty offices have been requested to monitor students closely so that appropriate interventions can be put in place

March 2011 16

PROGRESS.........cont.

NSFAS is no longer allowed to utilise recovered funds or any other resources of NSFAS to supplement the operational budget. This becomes the actual baseline for the operational expenditure of NSFAS.

NSFAS to submit a funding request as part of the normal budget process if any further additions are deemed necessary.

EXCO has signalled that the Strategic Plan will be reviewed and that adjustments will be required as part of the turn-around strategy.

March 2011 17

NSFAS Administration Budget

2011/12 2012/13 2013/14

R’000 R’000 R’000

77 384 81 954 86 601

PROGRESS.........cont. Information Technology and Document Storage

Systems

Information Technology In respect of the e-LAF pilot project, a small number of universities have adopted this facility

for the submission of their electronic data to NSFAS.  The rationale for the project was to enable the electronic submission of student loan and bursary agreement forms.  While this phase of the project has been put on hold pending the accreditation of an independent service provider for the advanced electronic signature, NSFAS will be introducing a web-based loan/bursary agreement service to universities in the next year.

Document Storage In the premises NSFAS secured last year, a fire-proof safe is used for the on-site storage of

all loan management documentation, and upon receipt of claims from institutions, all loan documentation remains in the safe until fully processed, at which point the documentation is collected for scanning and off-site storage.  NSFAS have contracted an off-site service provider (Metrofile) for the management and storage of all loan agreements and supporting documents.  This contract involves the collection of documentation on a weekly basis, the scanning of all agreements into electronic format, and the safe storage of all documentation off-site.

March 2011 18

PROGRESS.........cont. Student Financial Aid linked to education as a public

goodSome funds ring-fenced for scarce and critical skills and the PME targets

Teacher Education (Funza Lushaka) (now maintained by DBE and administered by NSFAS) Engineering Human and Animal Health Physical and Natural Sciences

NSF funding – Minister signalled the opportunity to utilise the NSF as a catalytic fund to address some of the skill priorities in a targeted way.Exploration of alignment NSDS 3, SETAs and loan/bursary schemeExploration of amount of funds required per student to ensure that financial need is appropriately managed and does not become a reason for drop-out or poor performance

March 2011 19

The majority of recommendations have been worked through;

The review indicates a major overhaul in structures/systems/policies and procedures. This requires time as they need to happen sequentially and in sync. It is envisaged that by the end of 2011, further policy changes to NSFAS will be effected.

March 2011 20