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How Helb can end reliance on Treasury for funds

COMMENTARY
By Ken Opalo | October 31st 2015

KENYA: This week President Uhuru Kenyatta rejected the Higher Education Loans Board (Helb) Bill. The Bill sought to compel Helb to give loans to all regular students at public universities. It also sought to provide a loophole for graduates to opt out of their payment obligations if they did not have a job.

In rejecting the Bill the President cited its discriminatory nature (by only focusing on “regular” students) and the fact that the move would increase government expenditure at a time when the Treasury is cash-strapped. I agree with the President. The Bill was poorly thought out, and created strong incentives for loanees to default. The fact that the Bill made it all the way to the President’s desk is an indictment of our legislative processes. Do we ever pause to think about the implications of the laws we pass? Is there anyone in Parliament willing to stand up for sanity and rationality?

In rejecting the Bill, the President urged Parliament to reconsider the unnecessary constraints on Helb. I would go further and propose a way to increase effectiveness of Helb as a financing option for higher education. I did my undergraduate studies at a private university in the United States that has an endowment half the size of the Kenyan economy.

The university is therefore self-sustaining in its ability to offer scholarships to students. All its admissions are need blind, meaning all admitted students have the option to attend. Those who cannot pay are guaranteed a free ride.

America also has another model for its public schools. For most students who attend such universities, there is access to relatively cheaper loans through government programmes. Some public schools also have endowments big enough to rival private universities, and can offer their own scholarships internally.

Here in Kenya, Helb is uniquely positioned to offer something that blends these two approaches. Instead of leaving Helb to the mercy of the Treasury’s allocations each year, we ought to endow the board with resources for the long haul. Such an endowment would be managed by a consortium of bankers and limited in the kinds of risk it would take. The proceeds from the endowment would then finance regular loan disbursements to students. Notice that Helb would still have access to loan repayments from the same graduates.

The question on your mind is probably, where do we get the money? First, we can raise the initial endowment by rationalising how the government spends money. We can agree that there is too much waste and graft in government. Why not clean things up with the express goal of using that money to invest in Kenya’s human capital? Second, we can organise regular fundraising drives to ask Kenyans and the private sector to chip in for the endowment. There are tens of thousands of Kenyans who would not have a degree if it were not for Helb. These people, their companies and employers, would be willing to chip in with a view of making university education accessible to more Kenyans.

Why would this model be superior to a model in which each university manages its own endowment? The first argument against a disaggregated endowment system would be scale. To get returns you need a big enough pot of money that allows the endowment to be sufficiently diversified.

Money managers also do not come cheap, so it is better to pool resources and have one endowment for the entire higher education sector. Second, we know not all universities are equal. If each university managed its own endowment separately we would end up with a system that over-supplies scholarships for some universities and under-supplies others. This is already a problem in the US where some universities have endowments in the tens of billions of dollars, while others struggle to keep the lights on – and therefore opt to saddle their students with unbearable loans.

Given our experience with the NSSF, does the idea of an endowment for our tertiary education system sound too utopian? Perhaps. But we can do it. It is definitely within our reach to build an independent and highly professionalised endowment management board for Helb. We fixed the Kenya Revenue Authority after 2002. We currently have a highly professionalised Central Bank. So what would stop us from creating yet another oasis of success and professionalism at Helb? This idea speaks to government reform more generally. I would advise the President that as he tries to clean up shop he should not try to do all at once. Instead, he should focus on creating specific oases of success that will then incentivise further change elsewhere through strong demonstration effects.

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