Student loans agency in urgent funding, recovery drive

Kenya’s Higher Education Loans Board or HELB – the agency that disburses student loans on behalf of the government – has launched a fresh drive to attract millions of dollars in long-term funds and recover more than US$120 million in loans. A savings scheme and lotteries are part of the plan.

HELB is keen to reduce its heavy dependency on government funding.

In the current fiscal year it sought US$200 million from the state as capitation but received US$28 million – a mere 14% of the request – even though access to loans has been widened from public universities to include college and private sector students.

The new strategy

A children’s education savings scheme will see parents pump millions of dollars into the fund, bolstering HELB’s loan book. People will be allowed to save up to US$10 a month to meet the learning costs of their children in future, with the money redeemable over periods of at least 10 years.

The scheme will place HELB in a head-to-head competition with insurance companies and fund managers already offering child education plans, but it will have to promise better yields to attract big ticket customers.

Chief Executive Charles Ringera said HELB was also planning to run lotteries in which students and the general public would compete for prizes, enabling access to additional funds.

“We are relooking at our existing fundraising and loan recovery strategies to ensure we guarantee the long-term sustainability of the fund,” said Ringera.

In its current strategic plan, HELB hopes to grow the student loan book from US$63.5 million to US$224.7 million by 2018.

The education ministry projects that the number of first time applicants seeking loans will grow nearly five-fold from this year’s 32,776 to 147,687 in 2018. This is because of growing student numbers and the expansion of loans to students in colleges and private institutions.

For continuing students, the number of applicants is expected to more than double from 101,000 to 247,328 in the same period.

Under the scheme, undergraduate students each receive between US$407 and US$698 annually. Successful applicants also receive up to US$93 in bursaries. This means that by the end of a four-year course, a student may have accumulated around US$3,000 in debt.

Forging partnerships

HELB has announced that it is deepening partnerships with key public agencies to tackle the problem of US$120 million worth of non-performing loans. It is working with the tax authority, state pensioner, public prosecutions, employers and others in efforts to track down past beneficiaries who have not been repaying loans.

To reach previous beneficiaries in the diaspora, HELB will soon launch a media campaign in key markets such as the United Kingdom, South Africa and the United States – countries that are believed to host most of this cohort.

Locally, since the beginning of this year it has become mandatory for all graduates to seek clearance from the loan agency before they can secure a job, as part of efforts to curb loan defaulting. HELB is also planning for Kenya’s 47 counties to set up bursary and scholarship schemes for needy students, and is piloting the initiative in one county.

A financing partnership agreed between Kenya and French public financier Agence Française de Développement or AFD in 2014, is yet to kick off. AFD intends to set up credit lines to fund university expansion and student loans, through private banks in Kenya.

Under the plan, partner banks will be legally entitled to take loans in foreign currency and will be subject to an in-house risk review by the AFD, as the credit lines will not be covered by state guarantees.

The initiative will include tailored credit lines, other tools such as risk-sharing and technical and institutional support, and will help set investment incentives and reduce barriers to scaling up investment in higher education.

Independent views

“Even as HELB mulls over the available options, it is important to remind the agency that a relentless pursuit of past beneficiaries, who are able but are not paying their loans, remains its best shot at staying solid in the long term,” wrote Kenya’s Business Daily last Monday.

“It might also help to increase penalties where it becomes clear that a loanee has been deliberately avoiding his or her obligations to the revolving fund. Most important, the state must stop playing politics with the fund and bring to an end the ever-growing list of beneficiaries.”

Independent analysts said that HELB, as currently constituted, is becoming increasingly exposed, with no guaranteed source of long-term funds.

“The increase in student numbers and the fact that students in private universities also get loans just means that HELB will go broke faster,” said Waga Odongo, a current affairs commentator.

To succeed, it would need the government’s allocation to rise annually, have a loan interest rate above the consumer price index and ensure low loan default rates. “It isn’t like that.

“The government last year refused to increase its funding, with the president bluntly telling HELB to figure out a source of income or perish. The repayment rate is atrocious because the economy isn’t yielding jobs for youth, and the 4% interest rate is often half that of inflation. Even if student numbers are capped, inflation and the default rate should put the fund out of business.”