Parliament moves against student fee defaulters

Kenya’s university students who default on fees face a bleak future after parliament recommended that a public university list those students and past students in arrears with credit reference bureaus.

Last week, Parliament recommended to Moi University – Kenya’s third largest public university by student numbers – to forward the names of the defaulting students and past students to the bureaus, a situation that would taint their individual creditworthiness.

The recommendation is a bid to recover at least US$5 million owed by past students to the institution which is facing a financial crunch.

The listing of loan defaulters more generally is already causing hardship for thousands of Kenyans who are unable to access financial facilities from local banks and other financial institutions.

The debts – which have nearly doubled over the past five years – are frustrating the university’s efforts to take in more students, expand facilities and offer better quality education. It is also denying it access to more lecturers to cope with the rising demand for higher education.

“This situation may be indicative of the university’s weak debt management system which tends to undermine its liquidity position,” said the parliamentary Public Investment Committee in its latest audit report on the university. “The committee recommends that the vice-chancellor forwards the list of fees defaulters for listing by the credit reference bureau.”

Parliamentarians said other universities facing a similar predicament should adopt the same measures.

Parliament also wants Moi University to partner with key institutions such as the Kenya Revenue Authority, the National Hospital Insurance Fund, the National Social Security Fund and the National Transport and Safety Authority which issues drivers' licences, in a bid to trace university graduates with debts.

Enlisting the services of these institutions would give Moi University access to some of the most comprehensive databases available in the country.

The Higher Education Loans Board is already working with these bodies to heighten recovery of money as the agency, which disburses loans to university students on behalf of the government, 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 to achieve a measure of sustainability.

The university has also been asked to implement a debt policy which should see it make provision for bad loans where necessary and seek approval for the writing-off of uncollectable debts.

It is estimated that the top five Kenyan universities – the University of Nairobi, Kenyatta University, Moi University, Jomo Kenyatta University of Agriculture and Technology and Egerton University – are owed up to US$50 million by past students in unpaid fees.

Such an amount is significant to their operations, especially at a time when the universities are exposed to funding risks because the government has not been increasing capitation in tandem with universities’ demand for funds.

An October 2016 audit report by the regulator, the Commission for University Education, showed that universities are sinking into a fresh financial crisis and are operating at huge budget deficits, hurting the quality of learning. The commission said Kenyan universities had an estimated combined budget deficit of US$100 million.

The report decries a growing trend among higher education institutions to spend more than 80% of their budgets on recurrent expenditure – largely salaries and wages – at the expense of capital projects, research and innovation.

A February assessment of public universities by the Auditor General listed 11 of the country’s institutions as being insolvent. Moi University was on the list.

Educationists and university administrators have predicted an upward adjustment in fees to factor in current economic conditions and to provide for rising default numbers. However, there are fears that an increase in fees could trigger a further surge in defaults, especially for students from poor backgrounds.

It is estimated that educational fees account for at least 60% of an ordinary Kenyan household budget, with more than half of this going towards university costs.

The rising default rate in universities coincides with a general increase in the stock of non-performing loans in the economy. By the end of last year, commercial banks held at least US$2 billion in bad loans on their books, highlighting the harsh economic times facing Kenyan households and businesses.

“The increase in gross non-performing loans was mainly attributable to challenges in the business environment that led to cash flow constraints for borrowers,” said the Central Bank of Kenya, the regulator, in one of its latest reports. Kenya’s inflation stood at 9.21% in June.