Dear Sir

The National Student Financial Aid Scheme would like to make oral representations to the Portfolio Committee on Trade and Industry in respect of the above Bill. In support of our request we submit the following:

Introduction:

The National Student Financial Aid Scheme (NSFAS) is a public entity established in terms of the National Student Financial Aid Scheme Act 56 of 1999. Whilst it has its own Board it falls under the Executive Authority of the Minister of Education. Included on the Board, which is appointed by the Minister of Education, are an employee of the Department of Education and a person nominated by the Minister of Finance. The organisation is subject to the provisions of the Public Finance Management Act and is audited by the Auditor-General.

The Scheme awards low interest loans to financially needy South African students who are academically deserving and who are studying at South African public higher education institutions. The maximum loan size in 2005 is R30 000. The size of each loans is determined at higher education institutions using a standard Means Test developed and distributed by NSFAS. At the end of each academic year up to 40% of the loan is converted to bursary dependent on academic performance. The balance of the loan is repayable once the loanee commences work and is earning a salary of above R26 300 per month. Our interest rate is adjusted annually with effect from 01 April of each year. The interest rate is determined by taking the average inflation rate and adding 2% which essentially covers the administration costs of the NSFAS head office. The interest rate for 2005 is 5% compared to 7% in 2004.

During the current financial year it is expected that approximately R1.2 billion in awards will be administered by NSFAS. Of this amount R850 million comes in transfers from the Department of Education, R280 million from loan recoveries and the balance from a number of smaller donors.

NSFAS legislation provides for loan recoveries from salary source after notice to employers of loanees has been given. In terms of the NSFAS Act employers who fail to make such deductions are guilty of an offence.

Our loans are written off if a loanee dies or becomes permanently disabled.

In considering our submission it must be borne is mind that the primary focus of NSFAS is to assist financially disadvantaged students, the overwhelming majority of whom have been historically and racially disadvantaged as a result of the previous regime's apartheid policies. NSFAS is widely regarded as a successful poverty alleviation programme and is expected to assist in excess of 100 000 students this year of whom 95% are Black (African).

In terms of the definitions in the Act it seems clear that the Act will apply to NSFAS and its loan agreements, which in terms of the Act are "student loans" and, accordingly, "credit agreements".

NSFAS welcomes the general purpose of the Act and therefore has no intention of requesting to be exempted from the overall provisions of the Act. However due to the specific and unique circumstances governing our Scheme there are a number of areas of concern which we bring to the attention of the Committee for the purpose of either amending the legislation or exempting the Scheme from specific aspects of the legislation.

NSFAS requests section 148(2) of the Act be amended to permit any and all decisions of the Tribunal to be appealed (rather than just taken on review) to the High Court.

In terms of the NSFAS Act certain public servants are specifically designated to serve on the NSFAS Board and therefore the NSFAS Act would be at odds with section 46(3). We would want to be exempted from this specific requirement which disallows public servants from being registered as credit providers.

NSFAS suggests that section 48 of the Act be amended to permit an aggrieved credit provider to take on appeal a decision by the NCR concerning registration provisions, to the Tribunal and, if the credit provider so wishes, to the High Court. Such right of appeal should extend to any reviewed or proposed new conditions contemplated in section 49 of the Act.

NSFAS requests that section 56 and section 57 of the Ad: be amended to make it clear that decisions of the Tribunal under those sections may be taken on appeal (rather than just on review) to the High Court.

NSFAS grants loans only to academically able and financially needy persons who are historically disadvantaged. It could well be accused of discilminating unfairly on one or more of the grounds listed.

This could place NSFAS in the invidious position of expending huge amounts of its resources in opposing a large number of claims in the Equality Court and other forums.

NSFAS requests that section 61 of the Act be amended to make it clear that:

Due to the high volume of applications received and the considerable additional cost involved NSFAS requests that:

Anything written in plain language that seeks to convey the complexities of the type of loan agreement required to protect the rights of NSFAS, will be much longer than the present document, creating enormous logistical problems, and vastly increased costs, for NSFAS. The documents used currently by NSFAS are already as jargon-free as possible. Several pages of text would be added to the agreement in order to explain various concepts in language which are readily underst3ndable by the intended consumer, using examples and illustrations, as required by the Act.

NSFAS requests therefore that section 64 be amended to excuse from its provisions any institution whose principal business is the making of student loans to historically disadvantaged persons, at rates of interest lower than are available commercially.

Full compliance with section 65 of the Act would place an unreasonable burden on the limited administrative resources of NSFAS, or would swallow loan funds up in increased administrative costs. [Every additional R10 000 that NSFAS would need to spend on administration would deprive a student of an award for one year.)

NSFAS therefore requests that section 65 be amended to excuse from its provisions an institution whose principal business is the making of student loans to historically disadvantaged persons, on condition that the institution, when it enters into a credit agreement with a consumer, provides the consumer with a copy of the loan agreement at that time.

If NSFAS is required to provide such information to a national register in relation to each and every credit agreement it concludes, this may place an unworkable burden on its infrastructure. Even if the information could be easily provided, given the nature of the credit agreements which NSFAS concludes, it will not be able to determine or state "the amount and schedule of each payment due under (an) agreement' or "the date on which the consumer's obligations will be fully sans fled".

NSFAS requests therefore that section 69 be amended to exclude NSFAS altogether from compliance with its provisions, or at least to excuse NSFAS from providing the information referred to in paragraph 14.4 above.

Section 89(2) of the Act stipulates that "a credit agreement is unlawful if, at the time the agreement was made the consumer was an unemancipated minor ... (my emphasis).

Our understanding of this section is that, if NSFAS concludes a student loan agreement with a student who is under the age of 21 and who is not emancipated or deemed to be emancipated in law, and even if that student is assisted by his/her parent or legal guardian in concluding the agreement, the agreement will be unlawful.

We believe the Act contains a serious omission, in that it does not exclude from the unlawfulness provision an agreement with an unemancipated minor who is assisted by his/her parent or legal guardian. It is vital therefore for an appropriate amendment to section 89 - otherwise the vast majority of agreements NSFAS concludes with its student borrowers would be regarded as unlawful.

Of course this matter will be further affected and facilitated by the Age of Majority clause in the Children's Act currently being considered by parliament and which lowers the age of majority from 21 to 18 years.

Section 90(2)(c) of the Act stipulates that "a provision of a cfl9dit agreement is unlawful if it purports to waive any common law rights that may b9 applicable to the credit agreement, and have been prescribed in terms of section 92(5) of the Act' and Section 90(5) of the Act permits the Minister to prescribe particular common law rights that may not be waived in a credit agreement.

The existing student loan agreement of NSFAS contains a provision in terms of which the borrower acknowledges that the agreement is not subject to the in duplum rule. That acknowledgement may well be deemed to be a waiver as contemplated in section 90(2)(c) of the Act.

Our advice in this regard has been confirmed in a recent decided case, as appears from the following passage quoted from the June 2005 edition of De Rebus:

The courts have therefore recognised that, where there is no prospect that the borrower will be exploited by the lender, the in duplum rule will not apply.

Because of the unusually benevolent terms of repayment contained in NSFAS's standard student loan agreement, the in duplum rule cannot be allowed to apply, because its application would lead to a gradual and significant diminution in the pool of money available to NSFAS to lend to successive generations of students.

NSFAS therefore requests that section 90(2)(c) of the Act be amended to exclude any waiver provision in a student loan granted by an institution whose principal business is the granting of student loans to historically disadvantaged persons, at interest rates lower than are commercially available.

It is possible that section 90(2)(n) of the Act, read together with section 124, may be held to prohibit NSFAS from utilising section 23 of the NSFAS Act to compel employers to make deductions from the remuneration payable to a borrower. While it is our view that it is likely that NSFAS would be able to convince a court that those sections do not prevent it using section 23 of the NSFAS Act, the possibility exists that a court might rule against NSFAS in this regard.

NSFAS relies heavily on deductions from the remuneration paid to its employed borrowers, to recover the money it lends. If it was denied this method of collecting debts, its ability to fulfil its statutory function would be seriously impaired

NSFAS requests that section 90(2)(n) of the Act be amplified so that the last portion thereof reads as follows:

This appears to be another provision which, if NSFAS is obliged to comply with it, will create an insurmountable logistical burden for the organisation, vastly increasing its costs, with no ascertainable benefit to the borrowers.

NSFAS's whole purpose, as is clear from the NSFAS Act, is to act in a benevolent manner by making affordable loan finance available to historically-disadvantaged students.

The rates of interest charged by NSFAS are pegged to the inflation rate, with the intention only of preserving the pool of revolving funds to be made available to successive generations of students, and to meet NSFAS's extremely modest administration costs.

If NSFAS is obliged to comply with section 92, and several of the other provisions discussed above which involve a substantial increase in NSFAS's administrative burden, the amount of funds available for lending to students will be significantly decreased by the increase in administrative costs.

NSFAS's compliance with provisions such as section 92 of the Act, and the attendant increase in administrative costs, will not serve the purpose intended by the Act, namely to protect the rights and interests of the borrowers. The rights and interests of NSFAS borrowers are already as protected as they can be, given the extremely benevolent terms which are included in the NSFAS loan agreement, including interest rates lower than any which might be available commercially, and terms of repayment which are extremely generous (far more generous than any commercial lender would ever allow).

NSFAS requests therefore that section 92 be amended to excuse from its provisions any institution whose principal business is the granting of student loans, at rates of interest below the prevailing commercial rates, to historically disadvantaged people.

NSFAS requests that section 103(5) be amplified by the addition of the following:

The justification for this amendment would be the following

The rate of interest charged by NSFAS changes only once per annum, when the new consumer price index is published by Statistics South Africa.

Nonetheless, because NSFAS has hundreds, of thousands of borrowers, and only a small staff (in order to limit administrative costs), it would be placing an unreasonable burden on NSFAS to require it to give such notice to all its thousands of borrowers.

NSFAS requests that section 104 of the Act be amended to excuse from its provisions a credit provider whose principal business is the making of student loans, at interest rates lower than those commercially available, to historically-disadvantaged persons.

This document provides only a summary of our suggestions and we would therefore welcome the opportunity to amplify our views through an oral presentation.

Thank you for your consideration. Yours sincerely

Allan Taylor

Chief Executive Officer