By Olivia Kumwenda-Mtambo and Stella Mapenzauswa

JOHANNESBURG (Reuters) - A protest against prohibitive fees threatens to derail South Africa's university calendar but impoverished students like Mmakatleho Sefatsa, who already face expulsion over unpaid bills, say they have nothing to lose.

The African National Congress (ANC) came to power in 1994 with promises to provide better housing, health and education for millions of blacks shut out during decades of repressive white minority rule.

But two decades later, 19-year-old Sefatsa's dream of becoming her family's first graduate hangs in the balance due to overdue payments, prompting her to take part in sometimes violent protests demanding free tertiary education.

"I owe the university close to 70,000 rand ($5,000) in tuition as it stands," said the second-year education student at Johannesburg's University of the Witwatersrand (Wits).

"Even if you don't protest, at the end of the year the university is still going to send you a letter to say: 'look you haven't paid for two years, you have to leave'."

Universities suspended classes this week after clashes in which police fired stun grenades, rubber bullets and tear gas at stone-throwing students.

The protests came after President Jacob Zuma's government said it would continue subsidizing university costs for the poorest students but could not afford free education for all.

The family income cut-off for financial aid means Sefatso is not poor enough to qualify - but her grandfather's pension cannot cover her schooling bills of 70,000 rand a year, forcing her to sleep in the library some nights and rely on handouts from friends to buy food.

Because her two older siblings combined earn 240,000 rand a year - considered part of her household income - Sefatso was told she does not qualify for the financial aid given to those from households earning 160,000 rand or less.

"I explained to them that they don’t live with me and they are not my parents. But they have been giving me a run around," she said. "I don’t have any hope."

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The trap Sefatso is caught in is commonplace - students not poor enough for free education but not wealthy enough to pay, in a group labeled the 'missing middle'.

Undergraduate tuition fees at Wits, one of South Africa's most expensive universities, range from 29,620-58,580 rand a year, beyond the means of many black students.

FEES FROZEN

Statistics South Africa data shows that university fees have soared by 80 percent since 2008, leading to the initial batch of protests last year that forced Zuma to scrap proposed increases for 2016.

But universities whose main source of income is fees say another price freeze next year would hurt their efforts to maintain high quality academic standards.

The government, grappling with a budget deficit of nearly 4 percent of GDP, has capped 2017 fee increases for next year at 8 percent, but says education subsidies should not come at the expense of other sectors such as health and housing.

The Treasury allocated nearly 300 billion rand to education this year, 20 percent of the budget and almost double spending on health.

To try to ease the pressure on university numbers, the government is trying to push students into cheaper vocational colleges where they can train to be plumbers, car mechanics and carpenters, among other trades.

But for many, this just perpetuates the racial inequalities of apartheid, where universities were the preserve of whites and blacks could aspire only to blue-collar jobs.

"The government has let us down. We have the will, we have the brains but we don't have the money to study," said Sihle Booi, a 22-year-old law student who fears getting kicked out of university over 50,000 rand of unpaid fees.

HARD GRAFT

The funding crisis is also damaging the ANC politically with many students linking it to the spread of corruption under Zuma.

The Constitutional Court ruled this year that Zuma flouted the law by ignoring an order to repay some of the 250 million rand in state funds spent on improvements to his private home.

Voters angry about corruption, unemployment and shoddy basic services then gave the ANC a bloody nose in August local elections, turning to opposition parties such as the Democratic Alliance, seen as a largely "white" party, and the leftist Economic Freedom Fighters.

"The demand for free education is just the tip of a deeper iceberg of frustration and anger among young people over broken promises, delivery failures, corruption, arrogance," NKC African Economics political analyst Gary van Staden said.

"What you are dealing with here is enormous frustration that goes way beyond the fees. There is a general disappointment with the political system."

($1 = 13.90 rand)

(Editing by Andrew Heavens)