MPs may ease loan repayment load on jobless graduates

There could be major relief on the way for Kenyan graduates as parliament mulls over a law that will bar the state-funded student loans agency from imposing interest and penalties on loans to graduates who remain jobless after completing their studies.

The private members motion that seeks to shield unemployed graduates from the wrath of the Higher Education Loans Board, or HELB, is currently under consideration following its tabling in parliament last month.

If passed, the law will ease pressure on new graduates who must service their loans despite the difficulties faced in landing well paying jobs. The level of unemployment among youth in Kenya is estimated to be 60%.

The motion has been welcomed by educationists and students, but leaves HELB – which disburses loans to tertiary students on behalf of the government – in an awkward position, as it might slow down the agency’s loan recovery efforts.

HELB is grappling with at least US$100 million in non-performing loans, which has rendered it unable to fully service growing demand for loans among students or achieve a measure of financial sustainability.

This has meant that needy students are missing out on opportunities for loans in a country where higher education is becoming increasingly difficult for households to afford.

Rising demand for loans and the surging cost of living sent HELB into a financial crunch, forcing it to tighten fundraising and recovery strategies.

The agency has been pushing for graduates to need clearance certificates to secure a job, as part of its efforts to curb loan defaulting. New guidelines would make it mandatory for companies to demand clearance certificates from graduates, which would show if they had loan arrears: repayments would be deducted from graduates’ salaries.

Public support

“The proposal is, to say the least, one of the most sensible and people-oriented pieces of legislation to come before parliament in the recent past,” said Business Daily of the private members motion in an editorial this month.

“This is because it recognises the stark reality of mass unemployment among graduates and the huge burden of student indebtedness that is rapidly growing in the economy as a result of the punitive penalties that HELB continues to impose on unpaid loans,” added the premier business paper.

If the motion becomes law, graduates will be required to notify HELB in writing about their lack of a source of income a year after receiving degrees or diplomas, upon which the board will not levy penalties on the loan.

But HELB has a fall-back strategy. The government has been considering strengthening the legal architecture around the loans body and tightening the noose on defaulters as well as employers who do not provide information on beneficiaries.

This is a route Kenya has successfully travelled. Today, a majority of employers deliver on student loan repayment obligations.

The numbers

Budget estimates released two weeks ago show that the government has set aside US$78.9 million for the fiscal year 2015-16 to sponsor students in universities, up from US$60 million in the current period.

But HELB managers said the agency required more than US$105.3 million to meet student funding needs.

Ndegwa Wachira, chair of the HELB board, said funding university students remained a challenge as student demand continued to rise. “This has called for innovative efforts to ensure that the fund is sustainable, hence the increased focus given to the recovery of loans held by past beneficiaries.”

Some 67,000 new students are set to join university this year. There are currently more than 500,000 students enrolled in public and private higher education institutions, many of them dependent on HELB for financial support. The agency now also funds technical and vocational education and training, or TVET, students.

HELB’s disbursement portfolio rose to US$74.7 million in the 2014-15 financial year, up from US$68.3 million disbursed the previous year. These funds supported 180,000 students, up from the 124,000 the previous year.

“Although this is about 30% of the student population in universities and TVET institutions, it is a considerable growth and coverage to students from economically challenging backgrounds,” said Wachira.

Also, he pointed out: “HELB has crossed the borders by funding Kenyan students in the East African Community region.”

In the current fiscal year, which began on 1 July, HELB expects to fund at least 209,000 students out of more than 600,000 tertiary students in various institutions of higher learning.

Financing options

Over the past five years, loan recovery has grown from US$24.2 million to this year’s US$35.7 million.

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

As previously reported, HELB has entered into a financing deal with the French Agency for International Development and was eying borrowing instruments in the World Bank and African Development Bank.

Through the deal, the development agencies are expected to offer students subsidised loans at pre-determined rates, estimated at slightly above the current 4% at which HELB lends to undergraduates, to be disbursed through local commercial banks.