Students face rise in loan rates as Helb plans bonds

The Higher Education Loans Board (Helb) is set to offer education bonds to investors in a new fundraising model that could raise interest rates charged on university loans.

The board has been relying on the Treasury and recoveries from past beneficiaries of its loans, but the rising number of university students has made it difficult to meet growing demand.

Now, Helb is looking at new financing models including taping corporate foundations and philanthropists as the State agency converts to an education bank by the end of this year.

The agency is mulling over increasing the interest rate charged on varsity loans or having the government top up a return to education bond holders to a level near market rates.

Presently, post-graduate students pay a rate of 12 per cent on Helb loans while those taking undergraduate studies pay four per cent, but the board could move the rate higher once beneficiaries enter the job market. 

“We will assemble an array of attractive products for long-term capitalists with interest in education to patronise,” said Charles Ringera, chief executive of Helb, adding that the board would target low interest rate markets like Japan.

The board has the challenge of compensating investors at market rates given that the bulk of the bonds in the market are priced at about 12.5 per cent. For instance, I&M Bank paid 12.8 per cent when it sought to raise Sh3 billion via a bond.

But Mr Ringera said that the board was pursuing number of options. First, it could restrict funding from the education bonds to post-graduate students who pay 12 per cent interest rate.

Secondly, it could turn to low interest markets. The board could also review interest rates levied on undergraduate students, or have the government top up the returns.

“Alternatively, the Government underwrites the difference because constitutionally it is its responsibility to educate citizens,” said Mr Ringera.

Streamline

“We could also think of tiers in our pricing — in college we charge four per cent and from the fifth year we move that to seven per cent since the beneficiaries will be earning — which will be a big cooling effect on the overheating cash flow engine.”

Mr Ringera said the new strategies to plug the agency’s growing financing gap were part of a raft of proposals made by a task force appointed by President Uhuru Kenyatta to streamline parastatals.

The board estimates that it will require Sh14.3 billion to meet higher education financing needs this year — yet it was only allocated Sh4.9 billion by the Treasury and collected a total of Sh3.3 billion — translating to a gap of Sh6.1 billion.

Demand for Helb loans has increased sharply due to the double-intake in public universities and the creation of new varsities. The board finances more than 80 per cent of university students who are fully dependent on government loans.

“It has been proposed that Helb is re-organised into a vibrant organisation which is able to deliver its mandate, including fundraising from other sources other than the Treasury allocation,” the taskforce said in its report presented to Mr Kenyatta last November.

The team, led by former Mandera Central MP Abdikadir Mohamed and Commercial Bank of Africa group CEO Isaac Awuondo, also proposed that State grants to institutions of higher learning be channelled through a restructured Helb.

“University fundings in the current arrangement should be channelled through a single source, possibly a restructured Helb.”

Mr Ringera said that the agency was overhauling the Helb Act (1995) to reflect the new status of the financier. “We plan to have the Bill in Parliament by June 2014,” he said.

Undergraduates get between Sh35,000 and Sh60,000 annually from Helb alongside a bursary of up to Sh8,000. This translates to a minimum of Sh140,000 and maximum of Sh240,000 for a four-year course.

The move by Helb becomes the latest resource mobilisation strategy employed by the agency which is also targeting unclaimed assets and hefty fines of Sh5,000 per month for loan cheats.

It also plans to partner with groups like MasterCard Foundation, Ford Foundation and USAid by turning their bursary and scholarship schemes into a low-interest revolving fund to benefit more students and ensure sustainability of the funds.

Helb has also hired debt collectors and prosecutors to track down, prosecute and recover about Sh8.3 billion owed to the financier by defaulters.

READ: Helb to prosecute loan defaulters and employers

The revolving fund, established in 1995, has so far disbursed Sh40.2bn to 375,783 students. Only a fifth of loan recipients, or 68,522 graduates, have fully repaid their loans worth Sh6bn.

Some Sh12.1bn disbursed to 133,569 loanees has not matured, while 98,194 beneficiaries are currently servicing loans amounting to Sh13.6bn, translating to a performance rate of 62 per cent.