About 109,661 former university students have defaulted on payments to the Higher Education Loans Board (Helb) in the wake of layoffs and a freeze in hiring, denying the agency cash flow to support freshmen and continuing learners.
The latest data from Helb shows loan accounts in default increased from the 106,443 recorded in December 2020, with unpaid loans standing at Sh10.9 billion.
This highlights the struggle faced by beneficiaries who were making repayments on the strength of their payslips or cash flow from businesses for those in self-employment.
The mounting defaults have weakened Helb’s ability to support university and technical college students, prompting allocation cuts that saw more than 75,000 university freshmen fail to get State loans after their admission in September.
The majority of loan applicants come from poor households and require financial support from Helb to pay for their tuition and upkeep.
The unpaid loans have grown from Sh6.7 billion in June 2020 when the count of defaulters stood at 68,882, reflecting the impact of Covid-19 economic hardships on Helb’s finances.
“A total of 109,661 loanees holding Sh10.9 billion are in default as of December 31, 2021,” said Helb chief executive Charles Ringera.
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 contraction of formal jobs in Kenya in 2020 was the first in two decades, reflecting the struggles of the economy that also shrank for the first time since 1992 on the back of coronavirus-induced shutdowns and restrictions.
The loss of 186,402 formal jobs, marked the first time since 2001 when some 18,300 salaried workers were struck off payrolls.
It was more pronounced in the private sector, which laid off some 206,700 workers in a tough business environment, featuring reduced operating hours as a result of a nighttime curfew and travel restrictions imposed to contain the pandemic.
The loss of jobs was also witnessed in the informal sector, popularly known as the Jua Kali — which accounts for about 83 percent of total jobs in Kenya — as well as those in self-employment (running their own businesses) and unpaid employment in family ventures.
The Jua Kali sector, which has been a driver of new job opportunities for many years, shed an estimated 543,600 workers in the review period to 14.508 million workers — accounting for 83.35 percent of 17.405 million workers in total in the country.
The number of self-employed workers also fell 6,600 to 156,100 in the period through June 2020, the findings of the Economic Survey 2021 show.
In total, the economy lost 737,500 jobs in the review period compared to an additional 847,100 jobs created the year before.
The Kenya National Bureau of Statistics (KNBS) is yet to release the 2021 jobs data amid the recovery of the economy from the pandemic.
In a move to encourage loanees to honour their obligation, the agency has announced a two-month penalty waiver.
The 100 percent penalty waiver dubbed KamilishaMalipoYaHelb, which closes on April 30, also seeks to encourage those that have not started repaying to do so in lumpsum.
A similar campaign run by the agency in 2013 saw some 10,110 beneficiaries pay off their loans valued at Sh1.3 billion.
In 2018, the penalty waiver campaign saw 9,998 beneficiaries pay Sh870 million to the agency.
Helb has been relying on the Treasury and recoveries from past beneficiaries for funds, but the rising number of university students has made it difficult to meet growing demand or raise allocation.
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.
The beneficiaries are expected to clear their loans within four years, a pointer of how layoffs and freeze in hiring plans have hit young employees.