University graduates struggle to repay student loans

Kenya university graduates who took up government-backed education loans are increasingly facing difficulties repaying their loans as a result of the COVID-19 pandemic which continues to bite the East African economy.

The Higher Education Loans Board (HELB) – the agency that disburses loans to students on behalf of the government – has said that at least 25,626 beneficiaries have either stopped paying or have requested delayed repayments since March when the country reported its first case of the virus.

This has affected US$46 million (or 16%) of the agency’s active loan book of US$285 million, said Charles Ringera, the chief executive officer at HELB.

He said a sizeable number of beneficiaries have been affected by salary cuts or job losses as a result of the impact of the healthcare crisis on the economy. Government data shows that over one million Kenyans have lost their jobs or have been put on indefinite unpaid leave, or have seen their salaries cut due to the COVID-19 pandemic.

“We have already extended moratoriums on repayment or downward reviews of monthly rates to a number of employers and loanees. So far, we have seen a reduction in loan repayments,” said Ringera.

Data from the Central Bank of Kenya (CBK), the banking sector regulator, shows that the ratio of non-performing loans (NPLs) rose from 12.5% in March to 13.1% in April, the highest since August 2007 when it stood at 14.41%. Defaults on loans rose by 11.1 billion Kenyan shillings (US$103 millon) to stand at 366.8 billion Kenyan shillings in April.

In March, the CBK directed banks to reschedule loan contracts of affected customers by giving, among others, repayment moratoriums of up to a year.

The education sector is completely shut with all learning institutions closed since the end of March. HELB is mandated to provide loans, bursaries and scholarships to Kenyan students pursuing higher education in recognised higher education institutions and to recover loans from beneficiaries who are expected to start repaying one year after completing their studies. They risk becoming blacklisted with credit reference bureaus if they default.

It is estimated that HELB is owed almost 50 billion Kenyan shillings (approximately US$500 million) by former university students and cannot trace 17,000 of its loan defaulters.

Over the past five years HELB has sought several avenues to reduce the level of non-performing loans which have crippled its growth ambitions, with its financier, the government of Kenya, cutting its disbursements in the wake of surging demand for loans.

Due to the high unemployment and migration of beneficiaries to the diaspora seeking greener pastures, the number of defaulting borrowers has continued to increase, with a default rate of over 30%, nearly three times the national financial sector percentage of non-performing loans which stands at around 12%.