The government has poured cold water on the proposed amendment to waive interest on the principal amount loaned to university students.
Higher Education Loans Board (HELB) chief executive Charles Ringera said although the proposal is geared towards reducing the financial burden on the fresh graduates, it will affect financing for other generations.
Appearing before the Education Committee, Ringera said repayment of loans is key to HELB’s mandate of creating a revolving fund for the benefit of other deserving students.
Ringera noted that extending the grace period to five years will reduce the number of students to benefit, saying income from loan repayment goes towards funding other needy students.
‘‘Reviewing the interest rate downwards and the proposed delay in repayment will have an adverse impact in terms of cash flows to fund students where currently 37 percent of student loan budget is from loan recoveries,’’ said Ringera.
In her bill, Joyce Kamene, Machakos Woman Rep pushes for the waiver of interest on the loan advanced to the youth and Persons with Disabilities (PWD) until they secure employment.
The legislator also wants a penalty charged upon defaulting in loan repayment should be charged five years after completion of studies.
Kamene also wants the maximum interest rate that may be charged on the loan advanced to be fixed at not more than three per cent per annum.
Committee chairman Julius Melly (Tinderet, MP) pressed the government to explain the effect of waiving the interest rate in favour of learners.
‘‘The interest rate of 4 per cent is punitive to students. How much will HELB lose by bringing it down by a single digit to induce the youth to pay the loan?’’ Melly asked.
Malava MP Malulu Injendi revealed that some government officials get loans at lower interest rates compared to the vulnerable members of society.
‘‘Members of the society including the government access loans at 3 per cent. Why are you pushing the youth and people living with disabilities who are vulnerable to pay more,’’ Injendi said.
Ringera said, that reducing the percentage will cost the government Sh1.8 billion which would need more capitation from the exchequer to make up for the loss.
‘‘Reducing the current rate to 3 percent will negatively impact on the revolving fund hence negatively affecting HELB’s ability to finance needy students’ given the current annual inflation rate,’’ Ringera said, adding that the 4 percent interest charged is way below the annual inflation rate 7.3 percent.
Kiambu MP Anne Muratha opposed the move saying if allowed leeway for delay, most beneficiaries will take advantage of the provision and fail to repay even when they are able.
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‘‘The way we know Kenyans, if we go that direction will we get any results? Even the rich are applying for the bursaries. Penalties are imposed to deter defaulters while interest is for partial cost of the cost of the cost of lending,’’ Muratha said.
Ringera said, there is no mechanism of determining what constitutes employment, when one is deemed to be employed and how to communicate to HELB information that one is now employed