Student dropouts cost South Africa Rs1.3 billion (£116 million) a year and divert resources from the expansion of higher education and redressing inequalities that remain from the apartheid era, according to the government.
On average, 20 per cent of students abandon their studies at universities and technikons each year, twice the international norm. This amounts to at least 120,000 students in a country with a severe skills shortage.
Ahmed Essop, chief director of higher education at the education department, said the problem was most serious at historically black universities.
It stemmed from financial difficulties faced by students and a sub-standard school system, he said.
Graduation rates are also low: 17 per cent at universities and 10 per cent at technikons. In 1998, just 89,000 out of 608,000 students graduated.
There are major differences between institutions, with graduation rates ranging from 6 to 24 per cent.
Growth in graduate numbers has not kept pace with growth in student numbers. In the five years to 1998, graduate numbers increased by 17,000 (24 per cent) against a rise in enrolments of 135,000 (29 per cent), with universities outperforming technikons.
The education department described the high dropout and low graduation rates as unacceptable and a huge waste of financial and human resources.
The education department has developed graduate benchmarks for institutions. A national plan published earlier this year by education minister Kader Asmal aims to tackle the problem.
"Statistics on graduate outputs indicate that few institutions meet the proposed benchmarks," says the national plan. "Given the small numbers entering higher education, this is a loss that the country can ill afford."
Professor Asmal has in mind two incentives for institutions to improve the situation.
The first is to link funding to the number of graduates each institution produces, in a funding framework under discussion.
The second is for institutions' performance in producing graduates to determine the programmes they are allowed to offer.
Institutions will be expected to set up development programmes for under-prepared students, funded as a component of the new funding formula, and to tighten up admission and re-admission.
In future, institutions will have to show that they have developed strategies to improve graduation and reduce dropouts in line with benchmarks that demand graduation rates of 25 per cent for three-year first degrees, 20 per cent for longer first degrees, 60 per cent for honours, 33 per cent for masters and 20 per cent for doctoral degrees.