The credit line is among the strategies being considered to bankroll the Higher Education Loans Board (Helb) in a new financing model, one that could however substantially increase interest payable on tuition loans, especially for postgraduate students.
Under Helb's strategic plan for 2013-2018, the board is seeking to charge at least eight per cent on all loans to undergraduate students sourced outside state funds from June next year. The board currently charges four per cent for postgraduate loans.
Any increase in interest rates by the restructured Helb must be determined by the cost of funds and approved by Cabinet.
The cost of higher education is expected to increase further as the government implements the University Act 2013, which became effective mid-December last year.
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This will see the rollout of the differentiated unit cost (DUC) model where students in public institutions of higher learning will pay fees according to the cost of courses.
A standard formula will be used to determine the cost of teaching each degree course to graduation. This could see students taking science courses paying more than their counterparts in the arts.
"For state funds, we are locked in in terms of interest rates. We want to create other products beyond the state capitation and recoveries, especially through syndicating loans. The intention is to get syndicated loans of say three per cent and have a price differential of eight per cent," said
Increasing rates on student loans is likely to increase the burden of loan repayments with the risk of triggering more defaults by students.
Currently, at least 39 per cent of Helb's stock of loans — Ksh33 billion (
Among the major financiers the
The AFD is planning to lend directly to universities pursuing big projects — projects that cost above Ksh430 million (
Institutions with relatively smaller projects will get access to the credit line but will have to borrow from banks that will be identified by the government and AFD.
The loans will not be guaranteed by the Treasury and, therefore, the partner banks will be required to take loans in foreign currency subject to an in-house risk assessment by AFD.
With the new plan, Helb is looking to grow its annual student loan portfolio from the current Ksh5.4 billion (
Of the students who get a grade of C+ and above in secondary school-leaving examinations, only 19 per cent have access to university loans, which the agency hopes to grow to 36 per cent in the next four years.
University managers warn that
Helb said the current loan allocation per student — which ranges between Ksh37,000 (
Helb plans to increase the minimum loan to Ksh50,000 (
"The high inflation also means that more Kenyan families are giving priority to the purchase of basics like food, at the expense of obligations like repaying Helb, and at the same time increasing demand for these loans since fewer families can hardly afford school fees," said
However, details of the interest rate were scanty, although officials familiar with the plan said the cost of the money will revolve around the interbank rate — the rate banks charge each other for loans. It is projected that the loans will be extended to banks for periods of between 12 and 20 years, with a five-year grace period.
The government is projecting a sharp rise in student numbers in the next two years, from the current 250,000 to 450,000 students in 2016.
This will raise the enrolment rate in universities from 3.5 to 10 per cent during this period.
The rapid increase in enrolment and faltering government capitation to public universities and Helb is threatening the existing system of state scholarships and public student loans.
"We are mapping potential donors with specific sector-support requests. We have now recruited a fund manager who will spearhead this function across the globe. We think this space is very broad," said
"There is pressure to mobilise all possible financing avenues to meet the demand. The trick is to ensure that through e-learning, students do not have to physically attend classes, reducing the pressure on facilities, " said Alfred Mutema, vice chancellor of
"We are exploring private funds both locally and globally," he said.
Currently, it costs at least Ksh900,000 (
Proponents of the new financing model argue that the government needs to target the poorest population for state-guaranteed vouchers and loans, while promoting the development of alternative affordable loans from the commercial banking system targeting a wealthier population.
The proposals are aimed at weaning the universities of their heavy reliance on short-term borrowing, which has left them with budget gaps and ramped up the cost of higher education.
"Both public and private universities are already borrowing money from commercial banks but the high interest rates and the short durations of those loans do not encourage investments in more costly and therefore less profitable — at least in the short run — programmes that nevertheless correspond to the needs of the job market. This obliges the universities to increase tuition fees that become unaffordable for the students and their family," said a concept paper prepared by the
Helb also plans to scale up its investments in government securities and fixed deposits — the only vehicles it has been tapping into — as well as float an education bond after conducting a feasibility study in
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