University financing crisis as student loans shrink

University financing crisis as student loans shrink

University financing crisis as student loans shrink

shrinking financial allocations from the government for universities of kenya. - Gilbert Nganga


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For Dennis Mwangi, the excitement of being a freshman quickly dissipated after he arrived at the University of Nairobi last month. The orphaned top performer from a sleepy village in central Kenya had to go without money due to delays in the disbursement of student loans – and when the money finally hit his account, it was much lower than applied for or expected.

Mwangi is among thousands of university freshmen who have been suffering as Kenya sank into a crisis occasioned by a biting shortage of government-supported student loans and spiralling loan repayment defaulting by former students.

The state of affairs last week prompted the Higher Education Loans Board, or HELB, to cut the maximum loan allocation to freshmen by at least US$115, citing a financial crunch and increased number of applicants.

Freshmen who joined universities from late last year had to suffer without funds for more than three months.

The numbers

HELB said in a statement last Tuesday that the near doubling of new students had left the agency with no option other than to cut the maximum annual allocation per student to US$555 from the current US$666. This is a big knock to thousands of first-year students. However, the minimum allocation remained unchanged at US$380.

More than 110,000 students applied for the loans at the end of last year, up from the 2013 figure of 65,000, while government capitation has been rising relatively slowly.

Out of the 110,000 first-time applicants, only around half – 65,000 – qualified for loans. But not all will get the loans, said Charles Ringera, chief executive at HELB. This means they will have to do with a life of financial difficulties on campus.

“It has been a trying three weeks. I have to adapt to a new environment, getting accommodation is a big hassle and the delay in disbursements has meant I can’t afford anything to start my new campus life,” said Mwangi who received US$555 as a loan.

Educationists have said that the amount allocated per student is too low – an average of US$411 – compared to the high fees charged by universities per semester, estimated at US$700. Inflation over the past year averaged 5%.

This has meant families having to give priority to basic needs, both pushing up demand for student loans and leading to low repayment of previous HELB loans.

In the current fiscal year, which ends in July, HELB had sought US$170 million from the government as capitation but received only US$28.3 million, a meagre 15% of the request.

“The board is unable to service the high number of applications from new students due to the debts. The number is far beyond our capacity,” said Ringera, adding that previous beneficiaries owed the agency over US$88 million. This amount is over seven times the annual allocation HELB gets from the government annually.

Youth unemployment has remained a big headache for the Kenyan government with over 60% of youths said to be out of work.

Delays in disbursement of the loans last week angered university students across the East African country. They had on Monday planned to stage a boycott countrywide to protest against the delay, forcing HELB to release the loans to their accounts.

“We are still pushing for HELB to be transformed into a financial institution so that it can offer better and timely services,” said Education Secretary Professor Jacob Kaimenyi.

In the current fiscal year 2014-15, HELB intends to fund 215,739 students at a total budget of US$95.5 million. This is expected to rise to 307,984 students at a total budget of US$141.3 million in the 2015-16 financial year.

The loans agency has targeted raising the student financing budget four-fold from the current US$63.5 million to US$224.7 million in 2018.

Under-funding

The crisis has exposed the soft under-belly of Kenya’s higher education system, which continues to grapple with concerns of underfunding and poor quality.

Now thousands of needy students will be missing out on opportunities for loans in a country where higher education is increasingly becoming difficult for households to afford.

University education in Kenya, a 2009 World Bank report showed, is among the most expensive in the region. With over 50% of Kenyan households considered poor, most parents and guardians require supplementary funding to keep their children in class.

It is estimated that 60% of a household’s budget in Kenya goes into spending on education, with university studies taking the biggest chunk of this since primary education is free for all and secondary education is partly subsidised.

HELB has been mulling over a range of fundraising options to allow it to keep up with growing demand and stave off over-reliance on faltering state funding.

Government statistics show that the total amount disbursed for undergraduate loans increased from US$49.7 million in 2012 to US$68.5 million in the current fiscal year. During the same period, postgraduate loans also increased from US$2.6 million to US$4.5 million.

“The target was to ensure 30% coverage of students at the university level and that they are financed adequately to cover at least 50% of the annual fees cost. However, this is not feasible given the scarcity of resources,” said the National Treasury in a paper detailing the spending plan for Kenya’s education sector for 2015-16.

“This will require mobilisation of alternative resources to cover the gap.”

The current crisis is putting to the test HELB’s strategic plan for the next five years, which had been billed by educationists as transformative and bold.

The agency said it hoped both to raise the proportion of students funded to 36% by 2018 and to raise the average amount per student from the current US$435.3 to US$588 per year. Currently, the board supports only 18% of all students enrolled in universities.

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