Layoffs push 106,443 to default Helb loans

About 106, 443 former university students have defaulted on their Higher Education Loans Board (Helb) in the wake of Covid-19 pandemic that triggered layoffs, business closure and freeze in hiring.

Helb data tabled shows loan accounts in default increased by 35, 561 in the six months to December with the defaulted loans increasing 55 per cent or Sh3.7 billion to Sh10.4 billion in the period when the virus ravaged corporate Kenya.

This highlights the struggle faced by beneficiaries who were making repayments on the strength of their payslips and cash flow from their businesses for those in self-employment.

Loan defaulters have weakened the Helb’s ability to support university and technical college students, prompting allocation cuts and requests for Sh8.6 billion additional funding from the Treasury.

“As at December 2020 Sh10.4 billion was held by 106,443 loanees, a sharp rise from the Sh6.7 billion held by 68,882 loanees as of June 30, 2020, mainly attributed to retrenchment as a result of Covid-19,” said Helb chief executive Charles Ringera.

Helb matured loans stood at Sh45 billion, giving the agency a non performing ratio of 23 per cent—which is higher than the banking average of 14.1 per cent.

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.

The beneficiaries are expected to clear their loans within four years, a pointer of how the jobs market plagued by layoffs and freeze in hiring plans has hit young employees.

Young workers between the ages of 20 and 29 years accounted for over 60 per cent of the lost jobs last year, according to data from the Kenya National Bureau of Statistics (KNBS).

The jobs report reflected a grim period for workers and businesses during the peak of Covid-19 restrictions covering travel mass gathering and a dusk-to-dawn curfew.

The restrictions were imposed on March 25 and on July 6 the government announced the phased reopening of the country, lifting restrictions on travel in and out of Nairobi and Mombasa as well as allowing air travel to resume.

Kenya’s economy shrank by 5.7 per cent in the three months to June, its first quarterly contraction since the global financial crisis 12 years ago, as the pandemic shut businesses and kept people at home.

Economic hardships

It contracted again 1.1 per cent in the third quarter to September compared with growth of 5.8 per cent in the same period a year earlier, pushing the country to a recession.

By July, some 25,626 beneficiaries of the Helb had re-negotiated or stopped payments due to covid-19 economic hardships that affected their ability to repay.

The agency has opposed a bid in Parliament to cut interest rates on students’ loans by one per centage points to three per cent annually, fearing loss of Sh693 million.

Mr Ringera warned that the shortfall will force Helb to trim the number of students it offers loans by 18,730, hurting learners’ quest to achieve higher education.

Parliament wants the Treasury to provide Sh8.6 billion to Helb in the financial year starting July 1, to ease the burden on students from poor families who may be forced to drop out.

The committee on Education and Research told the Budget and Appropriations Committee (BAC) that Helb has not been sufficiently funded to meet the needs of the growing population of students relying on the board for fees, food and accommodation.

“Helb is not adequately funded to carry out its mandate of financing higher education as the number of students in the recent past continues to rise and the need for new students to acquire laptops to ensure they are able to undertake virtual learning,” the committee said.

“The committee observed that there is underfunding which has inhibited service delivery in learning institutions and other critical institutions such as…Higher Education Loans Board,” BAC chairman Kanini Kega said in the report on the 2021 Budget Policy Statement.