More funds for students as loans body takes bold steps

Massive improvements over the past few months in the recovery of money from beneficiaries of student loans in Tanzania mean that over 5,000 more students can benefit from government loans in the current academic year, according to officials.

The improvements come in the wake of a legal amendment in November last year which allows the Tanzania Higher Education Students' Loans Board (HESLB) to deduct a higher percentage from graduates’ salaries, as well as the introduction of a new IT system which has improved the board’s ability to trace loan beneficiaries.

It is estimated that the number of students who will benefit in the 2019-20 academic year will increase by 5,200 to a total of 128,285 beneficiaries. HESLB will spend TZS450 billion (US$191 million) on loans, representing an increase of TZS22.5 billion (US$9 million) compared with the previous year.

According to officials, as at January 2019, about TZS507 billion (or 60%) had been recovered of the TZS784 billion disbursed in the 15 years since the loans board was established in 2004 and the disbursement of loans began in 2005. TZS277 billion is still unrecovered from beneficiaries.

The board, which sacked six directors last year over allegations of negligence and occasioning the loss of funds, has resolved to raise collections to TZS25 billion per month from the TZS3 billion collected per month in 2015-16.

Ignatius Oscar, HESLB director of loan repayment and recovery, told the media that the board had recovered loans from 198,659 out of 308,639 students issued with loans. He said since reforms were instituted, HESLB has seen an improvement in loan recovery from TZS14.85 billion in 2012-13, to TZS18.1 billion in 2013-14, TZS21.67 billion in 2014-15, TZS30.26 billion in 2015-16, TZS76.1 billion in 2016-17, and TZS109 billion collected between July 2018 and January 2019.

Legal amendments

In November 2018, the Tanzanian parliament amended the HESLB Act of 2004, raising the monthly deductions from gross salaries of loan beneficaries from 8% to 15%. Professor Joyce Ndalichako, minister of education, science, technology and vocational training, justified the raise on the basis of the need to grow the revolving fund for the benefit of more students.

The amended law also convicts defaulters who acquired loans during the years 1994-95 to 2005 and requires that employers cooperate by reporting their loan beneficiary employees and facilitating the timely deduction and remittance of monthly loans. Beneficiaries themselves are also required to notify the board in writing of their location and make arrangements for settling the debts.

The amendments, which took effect in January 2019, give beneficiaries a grace period of one year after completing their studies before they have to start repaying their loan. People who are self-employed are required to commit 10% of their monthly taxable income to repayment, while employers have 28 days to submit names of new employees to HESLB for verification, with failure to do so considered a criminal offence.

Failure by the employer to comply makes them liable for a fine of TZS1 million or no less than a 36-month jail term. HESLB officials have the mandate to examine records of all employees to verify loan repayment status.

Oscar told the media that with increased awareness more employers are now willing and able to identify beneficiaries from the database of defaulters, which has enabled HESLB to surpass collection targets for the financial year 2017-18 by TZS0.1 billion (from TZS3.1 billion against a target of TZS3 billion).

Other tactics

Among the board’s other tactics to enforce payment were plans to publish names and photographs of defaulters in the media. When the board threatened to publish such names, however, about 71,000 people indebted to HESLB began payment. To save members of parliament who had defaulted from embarrassment, a verification exercise was done and defaulters were encouraged to identify themselves and pay back or face the law.

And new technology has also played a role in making the recovery process more effective. A new electronic loan management system has been introduced which is linked to government systems, to facilitate the tracing of defaulters and prompt monthly electronic deductions off gross salaries.

Employers only need to disclose their graduate employees’ details and the system reconciles the names. To this end, HESLB has created partnerships with key stakeholders including the pension fund, Tanzania Revenue Authority, and the National Identification Authority to ease loan recovery.

In addition to the legal changes and introduction of new systems, some officials attributed the success of the board to a new team led by Executive Director Abdul-Razaq Badru and blessed by the political will of President John Magufuli who urged them to increase loan recovery collections and boost the fund.