Loans agency tightens noose on graduates seeking jobs

University graduates in Kenya may be required to seek clearance from the government’s student loan agency before they can secure a job. The Higher Education Loans Board, or HELB, has drafted new guidelines that will make it mandatory for companies to demand clearance certificates from graduates, as part of efforts to curb student loan defaulting.

The certificates will show whether graduates seeking jobs have any loan arrears with HELB, the agency that disburses loans to tertiary students on behalf of the government.

HELB boss Charles Ringera told the media in Nairobi that the agency was working with the Federation of Kenya Employers to fine-tune the guidelines before seeking state approval.

If approved, the guidelines are expected to heighten recovery of money as HELB grapples with at least US$100 million in non-performing loans, which has rendered it unable to service growing demand for loans among students or achieve a measure of sustainability.

Higher education sector shocked

News of the impending regulations sent another shockwave through the higher education sector, following a recent drastic decision by HELB to lower the maximum loan limit for new students by 20% to US$555 annually, so that it can grant more loans with limited funds. The minimum allocation remains unchanged at US$380 annually.

Students believe the draft rules are draconian and create a fresh layer of challenges to new graduates who are finding it extremely difficult to land jobs in a country with inadequate employment opportunities.

For those who at least make it to an interview, their papers face increasingly harsh scrutiny due to concerns of falling higher education quality. Youth unemployment is a major headache for the government, with over 60% of youths said to be out of work.

“Clearly, getting jobs has just got harder for us,” said Stephen Kioko, a third-year university student who has so far been given around US$1,670 in loans from HELB. “There is a shortage of job spaces. It looks now that there are several more hurdles to go over before getting into formal employment,” he told University World News in Nairobi.

But demand for loans has risen much faster than available funds, a situation exacerbated by loan defaulting graduates.

Government data shows that more than 110,000 students applied for loans at the end of last year, up from 65,000 in 2013, while government capitation has been rising relatively slowly. Out of the 110,000 first-time applicants, only around half – 65,000 – secured loans.

New guidelines

The new guidelines would place private employers in the same situation as public bodies, which already have to obtain written clearance letters from HELB confirming whether graduates who received loans are servicing them or have completed repayment.

Business Daily, Kenya’s premier business title, reported that job seekers will have to part with US$10 to secure the clearance letter from HELB – irrespective of whether they were given loans by the agency or not.

To ensure that companies comply, any employer that fails to get clearance before hiring a graduate will be liable to a fine of US$30 per month for each defaulting employee.

HELB has apportioned part of the blame for the huge loans defaulting problem to employers, who are currently required to effect repayment deductions from the salaries of all former beneficiaries of HELB loans.

As far as tightening belts goes, the state of affairs in Kenyan higher education financing could even get worse.

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 – even though access to loans has been widened to include college and private sector students.

In the 2014-15 fiscal year, HELB intends to fund 215,739 students at a total budget of US$95.5 million. This is expected to rise to 307,984 students at a total budget of US$141.3 million in the 2015-16 financial year.

The loans agency has targeted raising the student financing budget four-fold from the current US$63.5 million to US$224.7 million in 2018.

Government statistics show that the total amount disbursed for undergraduate loans increased from US$49.7 million in 2012 to US$68.5 million in the current fiscal year. During the same period, postgraduate loans also increased from US$2.6 million to US$4.5 million.

Already, HELB has signed partnerships with several mega-state agencies like the Kenya Revenue Authority and the National Social Security Fund – the mandatory state pensioner – to smoke out defaulters.

The two state bodies boast a huge number of clients, as most citizens are bound to be customers of both of them, especially if working in the formal sector.

HELB has been mulling over a range of fundraising options to allow it to keep up with growing demand and stave off over-reliance on faltering state funding.