Government gets tough on the repayment of student loans

The government of Rwanda has intensified its efforts to recover study loans from former beneficiaries, which it urgently needs to continue disbursing millions of francs in funds to academically deserving students who may need financial support for their higher education.

The recent efforts include the enactment of a ministerial order that determines fines and penalties for study loan beneficiaries who have failed to repay their loans on time – as well as for employers who fail to deduct money from employees’ salaries as a payment mode.

Managed by the Development Bank of Rwanda (BRD), the study loan is given to students who perform well in the national secondary school-leaving examinations, to cover the cost of education and related needs at a higher education level in Rwanda or abroad.

Tough penalties

According to the ministerial order released in January, a study loan beneficiary who fails to repay a loan on time will pay interest of 1.5% on the due amount for each month of late payment.

According to the ministerial order, employers are supposed to declare the appointment of a former loan beneficiary to the BRD within a period of 15 days from the date of employment, by using a prescribed declaration form.

When an employer fails to declare or to repay the study loan on time, BRD notifies it in writing that it is requested to repay the study loan, together with an administrative fine and a late payment interest, within a period not exceeding 15 calendar days from its reception.

A study loan beneficiary who does not inform an employer that he or she studied on a study loan for it to be deducted from his or her salary, or who fails to declare or to repay the study loan on time when he or she is a self-employed worker or works abroad or works with diplomatic institutions operating in Rwanda, without justified reasons, is liable to an administrative fine of 10% of the due amount.

An employer who does not declare, or deduct the amount for study loan repayments from the salary of the employee who studied on a study loan, or who deducts, but does not pay the amount on time, is liable to an administrative fine of 10% of the due amount.

Interest rates

According to the order, the study loan beneficiary should repay it through a deduction from the employee’s salary by the employer, a direct repayment by the beneficiary or voluntary repayment by a learner during studies.

An employer, the order says, repays the employee’s study loan by deducting 8% of his or her monthly gross salary, from the time the employee has been appointed.

However, a student loan beneficiary willing to repay more than 8% of his or her monthly gross salary, signs a payment contract with the financial institution, the order explained.

“A study loan beneficiary repays it with a simple interest [rate] calculated only once the total loan amount has been received,” reads the ministerial order in part.

It includes 11% for undergraduate students and 12% for postgraduate students.

“Interest on a study loan is calculated during the signing of a study loan agreement. However, the final total amount of interest is determined by the financial institution at the end of the agreement,” the order says.

According to the order, if a loan beneficiary is a self-employed worker or works abroad or works with diplomatic institutions operating in Rwanda, he or she repays the loan according to different arrangements after signing a repayment commitment plan with the financial institution.

Former students help to pay for current students

The government of Rwanda has been providing loans to students to study at national and international institutions since the 1980s.

Thousands have benefited from these loans and those who get jobs or who are self-employed have to service their loans to help other poor students to also access quality education at university level.

The income from the loan repayments is then supposed to be invested to fund the education of future beneficiaries.

The responsibility for loan recovery was given to the Development Bank of Rwanda (Banque Rwandaise de Développement, or BRD) in 2015 after the Higher Education Council (HEC), which was previously tasked with this, proved not to have the capacity to do so on its own.

Higher education financing of students, therefore, is possible through the recycling of recovered funds but also from government contributions or through partnerships with other development partners.

The low recovery rate of the study loans has necessitated a more forceful approach, such as the new ministerial order, to ensure that more beneficiaries service their loans.

The report by the auditor-general that was tabled before parliament’s Public Accounts Committee in September 2022 showed that only 18,626 (about 13.3%) of the 139,925 former beneficiaries, who are supposed to have repaid their loans, had done so by mid-2021.

According to the report, BRD managed to recover RWF24.4 billion (about US$23 million) out of the total disbursement of RWF221.85 billion (about US$227 million). The figures include disabled or deceased former beneficiaries whose loans were either waived or written off.

What do experts say?

Experts say various factors have contributed to the slow recovery of study loans and they hope the ministerial order will legally enforce repayment.

“At first, the loan disbursement process was not clear. Some beneficiaries thought the funding was a reward for their impressive performance in secondary school and it took them time to understand why they have to pay the loan back,” said an economist, who is also a university lecturer, and asked to remain anonymous.

“Secondly, there was not enough mobilisation [for the repayment] and some employers did not take the [instructions] to ensure that employees started paying as soon as the employment started very seriously,” he added.

The low recovery, he said, could also be attributed to the fact that some data [needed in the recovery process] are not available, and this affects the recovery.

“Generally, I have to say, the recovery was not well planned. New measures, including the released ministerial order, were much needed and it is expected to speed up the process,” he said.

Kampeta Sayinzoga, the BRD CEO, told members of parliament in 2022 that one of the new measures the HEC and the BRD have adopted to improve repayment is to establish a database of individuals who have benefited from loans and whose whereabouts are known.

“The database for beneficiaries whose whereabouts are known and who are employed has been 90% populated,” said Sayinzoga, who was optimistic that the recovery process would become easier.