Still no response to damning World Bank report

Stakeholders are still awaiting a response from the education cabinet secretary to a World Bank report released earlier this year which put Kenya’s Higher Education Loans Board on the spot for mismanaging its funds at the expense of needy students.

The report, titled Expanding Tertiary Education for Well-paid Jobs: Competitiveness and shared prosperity in Kenya, indicates that the Higher Education Loans Board or HELB is spending excessive money on administrative costs that could be added to students’ loans. It recommends an overhaul of the loan disbursement and recovery mechanisms.

The report, presented to Kenya’s Education Cabinet Secretary Dr Fred Matiang’i last month, is awaiting his action on its key recommendations.

Former University of Nairobi vice-chancellor and one of the authors of the report, Professor Crispus Kiamba, confirmed the report is awaiting Matiang’i’s response.

“Even though it has taken long for him to respond, we expect that he will do it soon,” he said, adding that once the cabinet secretary responds, the recommendations will be implemented immediately.

“We hope that with his recommendations, the government will come up with better alternatives for monitoring the HELB funds and not just leave it [monitoring] as the mandate solely of HELB. [We hope] it will also come up with other options of funding to HELB so as to ensure that all needy students in both public and private universities get their loans,” said Kiamba.

According to the World Bank report, HELB expenses mainly relate to administrative costs which could be avoided through outsourcing recovery operations and improved efficiency in day-to-day operations.

For instance, HELB’s 2012 annual operational expenses accounted for approximately 22% of the total expenses (US$1.38 million in operating costs out of US$6.13 million in total expenses).

Disbursement delays

The report follows a recent HELB announcement that more than 86,000 government-sponsored students who had joined universities during August and September would have to wait longer for loans.

HELB also moved the deadline for receiving students' loan applications from 30 September to 21 October in order to accommodate over 40,000 learners who were yet to submit their forms.

The report recommends an overhaul of loan disbursement and recovery mechanisms to ensure that the funding targets the poor and those unable to pay tuition fees. Not everyone should feel entitled to loans, it notes.

Emphasis on STEM

“Focus should shift to science, technology, engineering and mathematics or STEM to ensure that enrolment in the programmes is not compromised and to encourage enrolment in STEM fields,” says the report.

HELB is mandated to provide loans and grants to needy students in both public and private universities, as well as those enrolled in tertiary institutions in Kenya and East Africa.

According to the report, universities should be involved in the financial matters of students by promoting financial literacy and in helping to shoulder the burden of student loan payment during a student’s study period.

Unprecedented pressure

HELB is facing unprecedented pressure due to the increase in demand for loans as a result of the rise in numbers of students entering the post-secondary education system. The report projects that the number of loan applicants will grow by 30,000-35,000 each year between 2014 and 2022.

Higher education in Kenya has witnessed exponential growth. There are now 22 chartered public universities, nine public university colleges, 17 private universities, five private university colleges, 11 universities operating under letters of interim authority, and two registered universities.

Effective student loan systems have been shown to improve student throughput rates at the university level.

“Given the magnitude of current gaps in financing to support loans, there is an urgent need to improve the flow of investments to HELB to sustainably meet the demand,” notes the report.

“HELB should focus on seeking alternate sources of funding by delegating fund management to, inter alia, local governments and private companies. Initiatives similar to the Afya Elimu Fund (a public private partnership between HELB, USAID, the Kenya Private Sector Alliance and selected government ministries) are critical for establishing sustainable alternative sources of financing in support of higher education.”

No verification system

To ensure that the financial needs of students are met, the report indicates that HELB should establish a system to assess the veracity of financial information provided by loan applicants.

HELB data suggests that loan applicants under-report their family income to boost their chances of acquiring loans. At present, HELB has no credible verification mechanism for this.

“HELB should consider incorporating structured mechanisms to verify data collected for the loan application scorecard, even if this is initially done on a pilot basis,” notes the report.

According to the report, student loans do not vary significantly by household income, while disbursement mechanisms should be improved to prioritise support to low-income students.

It recommends that HELB would benefit greatly from risk-sharing mechanisms with beneficiary institutions and families.

“Private institutions accrue substantial benefits from financial resources derived from HELB-supported students, but these institutions do not contribute to the scheme.”

It notes that families too should reduce their out-of-pocket expenditure through access to student loans.

Target mechanisms

Target mechanisms should be made more predictable and transparent, complemented by public awareness campaigns. These measures will assist HELB in managing the expectations of applicants, encourage comparatively poor students to apply for assistance and erode the sense of entitlement among some students who can afford higher education, a situation which has in some instances contributed to social unrest in universities.

It is recommended that the loan recovery system should be strengthened through the use of documentation and innovative methods to improve timely repayment to ensure sustainability of the revolving fund.

Loans dispensed to undergraduate students in Kenya range between US$337 to US$578, according to needs. The loans are subjected to an interest rate of 4% per annum and students are required to commence payment of their loans on completion of their studies. Undergraduate loan repayment commences within one year of the completion of studies.

Alternative loans are available for postgraduate applicants (which range between US$578 and US$1,927) and undergraduate applicants who have salaried employment. Beneficiaries repay their loans while studying allowing the board to generate income from application fees and interest to build and maintain a sustainable revolving fund. The interest rate is 12% per annum repayable in 48 months.