Degrees of debt: How Ruto's new varsity funding plan will drown students in debts

Education CS Julius Ogamba flanked by Higher Learning PS Beatrice Inyangala (right) and PS for TVETs Esther Muoria when he appeared before National Assembly’s Public Investments Committee on Governance and Education, yesterday. [Elvis Ogina, Standard]

More than 200,000 students expected to join universities in September could become the first casualties of the government’s radical new plan to scrap undergraduate scholarships and replace them with loans, exposing them to millions of shillings in debt by the time they graduate.

Documents and submissions from the Ministry of Education to the National Assembly Education Committee reveal that the government plans to abandon the scholarship component of university funding and instead channel the money into student loans, effectively transferring the cost of higher education to students.

The Standard has established that the proposed student loans will attract an interest rate of 12 per cent, with graduates expected to begin repayment after a one-year grace period

The loan will also include money for upkeep, effectively reviving the “boom” era model where students received government loans to cater for both tuition and living expenses.

This means students will leave university carrying significantly larger debts  than before.

On Thursday, MPs heard that the Ministry intends to roll out the model in September should the proposal get the green light from parliament.

“Now we are removing scholarships. So the money for scholarships can be added to the loan. So more students will get the loan,” Higher Education Principal Secretary Beatrice Inyangala told the committee.

An analysis by the Standard shows that students pursuing longer and more expensive courses will be hard hit by the model, with their debt burden expected to rise even higher.

Take, for example, a student pursuing medicine whose annual tuition fee is sh600,000.

If the student is fully financed through loans for the entire six-year programme, they would graduate with a loan burden of about sh3.6 million.

They will also get an upkeep loan that will range between Sh30,000 and Sh60,000 each year.

If the Medicine student above gets Sh30,000 each year as an upkeep fee, then it means they will get Sh180,000 after the years in university.

This means by the time the student graduates, they will have received a Sh3,780,000 loan to finance their education.

With a 12 per cent loan interest, the student will now be charged an extra Sh453,600.

This means the student will now be required to settle a student loan of 4,233,600 that they will be required to start paying one year after completing university.

The proposal marks a major departure from previous funding systems where the government absorbed a significant portion of the cost of university education through grants that students were never required to repay.

Under the old Differentiated Unit Cost (DUC) model, students admitted to public universities benefited from government grants that met up to 80 per cent of tuition costs, with families and HELB covering the remaining amount.

That system was later replaced by the Student-Centred Funding Model, where every student received a combination of scholarships and loans depending on their level of financial need.

Students from the poorest households received the largest scholarships, reducing the amount they would eventually repay after graduation.

MPs on Thursday raised concerns about the viability of the model and the burden it will pose to needy families.

Siaya MP Christine Ombaka questioned the repayment plan given the mismatch between graduation and the period a student secures meaningful employment.

“The proposed funding model sounds very nice, very good and welcome. Our concern is on sustainability. Many graduates take a number of years before securing employment, and we do not even have a structured way of tracking those who get jobs, especially those in the informal sector. So how do we guarantee sustainability?” she asked.

In response, Higher Education Loans Board(HELB) Chief Executive Geoffrey Monari said research conducted by the ministry shows graduates take an average of five years to secure employment, although some find jobs earlier while others take longer.

To cushion the waiting period before graduates begin repaying their loans, the government plans to secure long-term concessional financing with a 10-year grace period.

Officials said the current HELB loan recovery rate stands at about 73 per cent and projected that enhanced collection mechanisms would improve recoveries to around 80 per cent under the new model.

HELB Chief Executive Geoffrey Monari told MPs that government simulations indicate only about seven per cent of graduates secure employment within the first year after graduation, rising to about 65 per cent by the fifth year.

He said the government intends to rely on bond financing during the first three years of implementation before transitioning to concessional loans carrying interest rates of between one and three per cent, repayable over 30 to 40 years.

Lawmakers also questioned whether extending government loans to students attending private universities could strain already limited public resources.

But Inyangala defended the proposal, saying the government funds students, not institutions, and that every Kenyan admitted to university deserves equal treatment regardless of whether they enrol in a public or private institution.

“The money is given to students, but the students choose whether they want to go to a public or private university,” Inyangala told MPs.