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New proposal makes varsity loans cheaper

By Augustine Oduor | March 9th 2020

Higher Education Loans Board CEO Charles Ringera. He says new proposal will lock out thousands of students from Helb. [Jenipher Wachie, Standard]

An MP wants the interest charged on Higher Education Loans Board (Helb) loans reduced from four per cent to two per cent.

However, Helb has opposed the Bill by nominated MP Gideon Keter, arguing that it might lock out some 47,000 students from funding.

Presently, students who default on loan repayment are slapped with four per cent interest rate per year, which generates some Sh3.74 billion for the loan’s board annually.

An analysis by Helb shows that The National Treasury may have to bridge the gap occasioned by slashed revenue if the interest rate is reduced by half.

This means that Treasury will chip in Sh1.87 billion annually if the Bill is passed.

According to Helb, this is the amount of money needed by the fund to finance the students who would be affected by the reduced interest rates.

The Helb Amendment Bill (2018) proposes that the interest to loans advanced to students be pegged at two per cent, half of the present rate.

“The maximum interest rate to be charged by the board on principal amount advanced to a loanee shall not be more two per cent per year,” reads the Bill.

According to Helb data, the total amount in interest generated per year from defaulters stands at Sh3.74 billion. This accrues from some Sh752,327 owed to the commission.

Overall, Helb is owed Sh93.6 billion.

According to Helb, about Sh1,00,907 Kenyans have benefited from the loans. This translates to some Sh113 billion spent on the students.

By end of February there are some Sh492,227 matured loans that ought to be paid by students who have cleared and are ready to settle the debts. This number of beneficiaries of the loans is holding Sh58.5 billion.

Another Sh184,046 debtors holding some Sh27.9 billion are already actively repaying their loans and are exempt from the interest penalties. A total of Sh76,054 debtors holding Sh7.2 billion are in default.

Analysis shows that even with the present four per cent interest rates charged, Treasury is still paying a plug of 3.5 per cent given that the cost of the Helb fund is 7.5 per cent.

“Any additional gap means that Treasury will have to plug in to cover for the additional funds that will be created by reduced interest rates,” said Charles Ringera, Helb Chief Executive Officer. According to Helb, students will be the biggest losers if the Bill is passed because it will reduce the revenue base of the Fund.

“As students are increasingly taking more loans, the gap will continue to widen,” said Ringera.

The government sends Sh30,000 to all Technical and Vocational Education and Training (Tvet) students annually. And in addition to this, Helb sends each student Sh26,000 and another Sh14,000 pocket money for upkeep.

The Bill also seeks to bar the board from setting the interest rates for the loans it issues.

“The amendment seeks to remove from the board the functions of setting the rate of interest for loans granted under the Act,” reads the Bill.

It also seeks to provide that loans advanced to youth, women and persons with disabilities under the Act will not accrue any interest for as long as these persons have not secured employment.

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