How Helb lost potent weapon against defaulters

Student loan beneficiaries at Helb offices in Nairobi. FILE PHOTO | NMG

The High Court’s decision to stop the Higher Education Loans Board (Helb) from imposing interests and fines exceeding the principal amount has taken away the agency's biggest weapon against defaulters even as it came as a major relief for unemployed beneficiaries.

It has also made it one step harder to collect the Sh10.2 billion in unpaid student loans.

The agency is already grappling with inadequate allocation, delayed release of cash from the Treasury and a growing list of loan defaulters amid an increased number of applicants from poor households.

What the court’s decision means is that Helb has lost its most powerful weapon of compelling beneficiaries to repay loans, in what could cripple its ability to cater for needy students.

“With the court’s decision, many beneficiaries are going to abscond, meaning there will be a slowdown in loan repayment which will potentially cripple the agency,” says Dr Samuel Nyandemo, an economics and development senior lecturer at the University of Nairobi (UoN).

Latest data from Helb shows loan accounts in default stand at 94,216 from the 109,661 recorded by February, a 14 percent drop following a four-month penalty waiver that sought to encourage beneficiaries to repay amid the impact of the Covid-19 effects on the economy.

Helb loan deductions are required to be remitted by the 15th day of every month with failure or delayed remittance, attracting a five percent penalty of the total amount due.

Justice Alfred Mabeya last week ruled in favour of three Helb beneficiaries Ann Mugure, Davis Nguthu and Wangui Wachira who argued the interest rates and penalties on non-performing loans were exorbitant and contravened the Constitution.

Court documents show that the trio on diverse dates borrowed loans from the Helb to facilitate their undergraduate studies, but the exorbitant interests and penalties saw the amount balloon to phenomenal levels, which made their ability to service the loans difficult.

Ms Mugure who is a youth living with disability borrowed Sh82,980 in July 2004 at an interest rate of two percent and by July 2016, the debt had accumulated to Sh540,464.

In its defence, Helb argued Ms Mugure failed to inform the agency that she was a beneficiary living with disability and explain hardship in repayment which would have been put into consideration.

Mr Nguthu borrowed Sh146,090 in July 2016 which shot up to Sh335,207 by March 2021. Helb in this case argues he only made three payments and failed to inform the agency of any hardship in repayment making the loan to continue incurring interests and penalties.

The third petitioner Ms Wachira borrowed Sh135,000 in July 2016 which has increased to Sh336,573 by February 2021. Helb argues that after her loan matured in July 2014, she made no effort to repay the loan or explain any hardship in repayment.

“Changing the status quo will be difficult to achieve if Helb is not in touch with the loanees consistently to understand their challenges in repaying,” said education economist and policy analyst Andrew Riechi.

Beneficiaries are expected to start servicing their loans a year after completing their studies and clear the balance within four years. The short repayment period has been linked to the growing list of defaulters.

Attempts by lawmakers to increase the grace period for Helb loans repayment to five years after graduation to allow beneficiaries time to stabilise financially have since failed.

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.

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