Helb risks Sh15bn loan defaults on job losses

About 26.9 per cent or at least Sh15 billion of student loans issued by Higher Education Loans Board (Helb) risk falling into default amid job cuts and freeze in hiring in the wake of Covid-19 pandemic.

Education ministry data shows this is a slight improvement from the 28 per cent non-performing student loans a year earlier.

The pandemic has resulted in layoffs, pay cuts and unpaid leave, making it a struggle for beneficiaries to make repayments on the strength of their payslips. Loan defaulters have weakened the Helb’s ability to support university and technical college students, prompting allocation cuts.

“Performance indicators show 26.9 per cent of the Higher Education Loans Board portfolio is at risk,” reads the Education Sector Report published by the Treasury.

At 26.9 per cent, the forecast Helb defaults, is double that ratio of banks’ non-performing loans that stood at 13.6 per cent — the highest since August 2007

There were 492,227 mature accounts holding Sh58.5 billion during the review period.

The Helb is supposed to be a revolving fund in which beneficiaries who have completed studies pay back the loans to support a fresh group of students.

This has, however, not been the case in an economic setting that is plagued by a hiring freeze on the back of sluggish corporate earnings.

The number of formal jobs the economy generated fell to a seven-year low in 2019 and is expected to dip further due to the Covid-19 pandemic.

Lawmakers are pushing to increase the grace period for Helb loans repayment to five years after graduation, to allow beneficiaries time to stabilise financially.

Currently, beneficiaries start repayment one year after completing studies or risk blacklisting with credit reference bureaus for defaulting. The short repayment period has been linked to the growing list of defaulters at the Helb.