Cape Town - Higher Education South Africa (HESA) says students who owe universities money should still be allowed to graduate.
These students should sign a formal contract committing to pay their outstanding fees once they get a job and that they would not receive their certificates until their debts were cleared.
HESA acting chief executive Dr Jeffrey Mabelebele made the suggestion before Parliament's Portfolio Committee on Higher Education on Wednesday when his organisation -- along with the National Student Financial Aid Scheme (NSFAS) and Department of Higher Education and Training -- made presentations on student funding and registration for 2012.
Mabelebele said universities were willing to provide employers with a letter confirming that the student had graduated.
However, he highlighted that institutions of higher learning were in a "precarious financial position" due to a real decline in government subsidies over the last 10 years.
"Higher education expenditure is declining alarmingly in both real and student per capita terms. It is also declining as a percentage of the government's budget subsidies."
He said the decline put pressure on the two other sources of income available for the institutions, which were tuition fee income and "third stream income".
This, he said, left universities in increasingly worsening financial positions.
He underlined that most universities "commit huge financial resources to support large numbers of financially deprived students" to obtain higher education qualifications.
For example, he said in 2012, Rhodes University spent R36 million out of its own coffers to support students who owed the university money.
He said that the expansion in student numbers in the higher education system was not matched by an increase in government funding. He warned that such a scenario could "jeopardise existing quality levels of higher education".
Mabelebele cautioned that if the tertiary sector failed to "expand significantly", this would continue to put pressure on universities to admit students while they did not have the required resources to support them.
Improving the education system is one of government's key five priorities and is allocated the largest share in the national budget annually.
