Bold plan to raise US$224.7 million for student loans

Kenya is seeking to have all financers of university education channel their funds through the Higher Education Loans Board, or HELB, in a bid to guarantee the sustainability of the currently faltering student funding mechanism.

In a new strategic plan, HELB said this would give the country a sustainable and larger revolving fund that would ensure continuity and availability of loans for students.

The board – which administers student loans on behalf of the government – relies on state subsidies to raise loans for tertiary students, a model increasingly facing a test of survival.

It plans to grow the current student financing budget from US$63.5 million to US$224.7 million in 2018.

The new strategy would also see bursaries and grants converted into loans, and universities directed to channel all grants through the board. Dozens of local and international groups run bursary and grant schemes, estimated to be worth more than US$100 million annually.

“The idea is to communicate to all universities to make their grants requests to HELB based on the numbers of needy students,” said the board’s chief executive Charles Ringera during the launch earlier this month of the strategic plan for 2013-18.

The board is also seeking to lobby higher education financers to channel all funding through HELB and sign a service-level agreement.

The board intends to seek an approval from the Ministry of Higher Education by June, and expects to roll out the plan in the second half of this year.

Increasing lending capacity

Kenya projects that the number of first time applicants seeking loans will grow nearly five-fold from the current year’s 32,776 to 147,687 in 2018. For continuing students, the number of applicants is expected to more than double from 101,000 to 247,328 in the same period.

While HELB had set out to fund 100% of applicants over the past four years, it only managed 39%. This highlights the growing challenges of financing higher education in the country.

The board said capitation from the government had become increasingly unpredictable, hampering its operations. For example in the current fiscal year, which ends in July, HELB had sought US$170 million from the government as capitation but received only US$28.3 million, a meagre 15% of the request.

Rising demand for loans and surging living costs has sent the board into a financial crunch, faced with dwindling funds. Needy students have been missing out on opportunities for loans at a time when higher education is increasingly difficult for households to afford.

Demand for loans has been further pushed up by the government’s double-intake plan, which began to be implemented in September 2012 in an attempt to clear a decades-long backlog of student places.

The new strategic plan said there had been an attempt to approach the market to finance education, with a concept paper presented for approval, “but this was put on hold”.

Three other strategies had proposed a review of interest rates, risk management for loans and investment in property. “The implementation of these strategies was not successful due to constraints in terms of policy and prevailing macro-economic conditions,” the plan said.

Currently, the board covers only 18% of all students enrolled in universities and the amount being disbursed is relatively low compared to the rising cost of living and high tuition fees charged in East Africa’s biggest economy.

“As economic pressures continue to push up inflation rates, the cost of living increases. This calls for HELB to continuously revise its allocation to students who apply for financing. However, this can only be achieved if the board has a strong financial base and capacity to raise additional funds to meet the budget requirements,” said Ringera.

Inflation over the past five months has averaged 7% and has been rising. This has meant families having to give priority to basic needs, both pushing up demand for student loans and leading to low repayment of previous HELB loans.

The strategic plan said HELB hoped both to increase the proportion of loan applicants funded to 36% by 2018 and to raise the average amount per student from the current US$435.3 to US$588 per year.

Under the University Act 2013, which became effective in mid-December, HELB is expected to finance students based on a differentiated unit cost model. But the agency said this continued to be a challenge given low capitation.

Late last year, a deal was signed with the United States-based firm Latimer Education Inc to increase funding for the scheme. Latimer will provide US$11,800 to be disbursed by HELB in loans to needy students – an amount expected to rise substantially in the coming years.

The Latimer partnership forms part of a chain of agreements HELB has negotiated with individuals and institutions to enhance availability of funding for the rapidly growing number of Kenyans from needy backgrounds seeking to access higher education.