The National Student Financial Aid Scheme (NSFAS) was established to provide financial assistance to students from low-income backgrounds, ensuring they have access to higher education.
In principle, this is a noble cause. In practice, however, the scheme has become a case study in financial mismanagement, corruption, and economic inefficiency. Billions have been wasted on students who do not qualify, while many recipients graduate with qualifications that have little to no market demand. The result? A cycle of unemployment, an unsustainable financial burden on taxpayers, and a higher education system that fails to serve the country’s economic needs.
The Economics of Misallocation
The fundamental problem with NSFAS lies in the misallocation of resources. The scheme does not differentiate between qualifications that lead to employment and those that do not. This approach violates a basic principle of sound economic policy: scarce resources must be allocated to their most productive use.
Between 2018 and 2021, NSFAS wrongfully disbursed R5 billion to approximately 40,000 students who did not meet the eligibility criteria. Additionally, in the 2022/23 financial year, irregular expenditure stood at nearly R60 billion. These figures represent an immense opportunity cost: money that could have been invested in sectors that drive economic growth and job creation.
Moreover, many NSFAS-funded students graduate with degrees in fields that have minimal demand in the labour market, leaving them unable to find jobs. South Africa already has an unemployment rate exceeding 40% among young people, yet public funds continue to be spent on qualifications that do not align with economic needs.
A Better Model: Market-Driven Education Funding
In a well-functioning economy, investment follows demand. If there is a shortage of engineers, doctors, and IT specialists, incentives should be structured to produce more graduates in these fields. A rational funding model would prioritise disciplines that contribute to economic growth and provide a return on investment for both the student and the taxpayer.
Currently, there is a surplus of graduates in fields like social sciences, media studies, and certain humanities degrees, many of whom struggle to find employment. Meanwhile, industries such as healthcare, technology, and engineering face skills shortages. If NSFAS were structured like a rational investment portfolio, funds would be directed towards disciplines with the highest employment prospects and economic impact.
The Corruption Factor: A Drain on Public Resources
Beyond misallocating funds, NSFAS has also been plagued by corruption. The Special Investigating Unit (SIU) has been actively recovering stolen funds, with at least R477 million retrieved so far. However, this is only a fraction of what has been lost to fraudulent activities. When financial aid is stolen or misused, deserving students are left without support, and the system as a whole loses credibility.
Accountability and Reform: The Way Forward
To ensure that NSFAS serves its intended purpose, South Africa must adopt a results-driven approach:
• Tie Funding to Market Demand – Public money should not fund qualifications with little economic value. Instead, funding should prioritise areas where graduates can contribute to economic growth.
• Introduce Performance-Based Funding – Students should be required to meet certain academic and professional benchmarks to continue receiving financial aid.
• Eliminate Corruption and Waste – NSFAS must implement stringent oversight mechanisms to prevent fraud and ensure that only qualified students receive funding.
• Encourage Private Sector Involvement – Businesses should have a say in shaping higher education funding to align with industry needs.
Failure of economic logic
NSFAS, in its current form, represents a failure of economic logic. By funding qualifications with little market value and enabling financial mismanagement, it is failing both students and taxpayers. A rational system would prioritise efficiency, accountability, and economic impact, ensuring that higher education funding serves as a tool for national prosperity rather than a burden on the economy.
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