In 2022, the National Student Financial Aid Scheme (NSFAS) introduced a new direct payment system for student allowances. After being piloted at Technical and Vocational Education and Training (TVET) Colleges, the new payment system was rolled out at universities in June 2023.
The direct allowance payment system was introduced to streamline the process of paying allowances to students while giving them confidence that allowances will be paid. However, several challenges have arisen with students struggling to grapple with the new payment system.
NSFAS partnered with four service providers to bring the new direct allowance payment system to students. Students have complained about exorbitant bank charges being charged by service providers and the inability to access their allowances
In October 2022, the Organisation Undoing Tax Abuse (OUTA) released an investigation report on the NSFAS direct payment system.
Their investigation focused on how service providers hired by NSFAS did not have the required banking licences [or VAT registrations] to pay NSFAS allowances and service providers charging higher bank fees than most commercial banks.
OUTA have now released an updated version of their investigative report and believe that tender awarded for the payment of allowances were irregular.
What OUTA Found
They explain that the rollout of the direct payment system caused total chaos, with thousands of students calling for the scrapping of the system.
The students' main concerns include previously funded students who were suddenly not receiving allowances anymore, the excessive fees charged by the service providers, as well as the late payment of allowances – about 25% of onboarded students were not paid on time.
OUTA says that cancelled tenders for allowance payment had 20 mandatory requirements for service providers while the current tender only includes five mandatory requirements.
One notable change is related to the banking licence requirement, which has been altered to allow bidders with a banking licence OR a sponsor bank OR an affiliation with a bank to submit their bids.
OUTA says this is concerning as it opens the door for bidders who are not registered as financial service providers (FSPs) to be awarded the tender. This has led to some appointed service providers not meeting FSP criteria.
Their investigation also uncovered a lack of concrete evidence regarding agreements between banks and service providers. Despite extensive efforts, no proof of agreements was found in both the November investigation and the latest investigation.
OUTA says the only information currently available is a subtle notice on the websites of some service providers indicating their affiliation with Access Bank or another fintech company called Ukheshe.
Concerns have been raised regarding NSFAS’ failure to publish the agreed fee structure it maintains with the service providers.
Furthermore, OUTA says their investigation highlights that NSFAS initially aimed to implement a monthly fee of R102.35, which was later reduced to R12 due to pressure from students and civil society. However, they alleged that transaction fees on these bank accounts appear to have increased following the reduction in the account fee.
NSFAS Board Chairperson Ernest Khosa revealed that the financial aid scheme is currently engaged in negotiations with service providers in an effort to gain value for money services for students.
NSFAS is in the final stages of negotiating value added services that will see in as far as beneficiaries enjoy special benefits from specific stores such as discounts and purchases
The findings made by OUTA have been shared with the Special Investigating Unit (SIU), as it has the mandate to probe NSFAS.
