MPs reject Bill on lower interest for Helb loans

A committee of the National Assembly has rejected changes to the higher education law to slash interest charged on student loans to three percent and the grace period for repayment increased to five years.

The National Assembly’s Education committee rejected the Higher Education Loans Board (Helb) Bill, 2020, warning that if adopted, the board stands to lose Sh693 million annually and Sh3.4 billion in five years.

“The reduction of interest rate to three percent is likely to plunge the Board into a huge student funding deficit where many needy students will miss out on the funding,” it said in a report.

Under the proposed changes to the Higher Education Loans Board (Helb) Act, interest on the loans will fall from four percent to cushion jobless graduates from the Sh5,000 monthly fine for defaults. Currently, graduates are required to start repaying the student loans within a year after graduation which has left thousands of beneficiaries in default and at risk of being blacklisted with the credit reference bureaus (CRB).

The Bill has proposed that rate of interest charged on the student loans now be set in law, taking away the power of setting the charges from Helb—whose responsibilities include controlling credit costs.

The committee in a report to the National Assembly however said that if the Bill the proposal is ambiguous on who would set the interest rates and how it would be done.

“Subjecting applicants’ interest rate approval to a third party creates a risk of reducing Helb’s revenue in the event that the interest rate is varied downwards,” reads the report

The committee also argued that the proposed amendments take away the power of Helb in setting the interest rates as provided in section 6 of the Helb Act. The committee chaired by Busia woman representative Florence Mutua warned that if the interest rates are reviewed downwards as proposed, then it will have a great effect on Helb helping students in the future.

“In the event that the interest rate is varied downwards, Helb’s financial capacity to fund students will be grossly affected. This, therefore, requires the National Treasury to provide more budgetary allocations to Helb,” reads the report.

“Loan recovery has been a major component of resource mobilization for Helb as a revolving fund has immensely contributed to annual students funding budget. Consequently, it has been instrumental in Helb’s pursuit to create a national sustainable revolving fund from where future generations an borrow for tertiary financing even with minimal exchequer support,” further reads the report.

The Bill which underwent first reading on 8th October 2020 and committed to the education committee for public participation seeks to amend Helb Act to waive the imposition of interest on the principal amount of a loan advanced to the youth and persons with disabilities until such time as they have secured their first employment.

The Bill also sets the percentage of interests that may be charged on the loan advanced at three percent down from the current four percent. It also provides that the penalty charged on defaulting of the loan shall be charged after securing employment or five years after completion of studies.

The main purpose of the Bill is to reduce the financial burden on recent graduates who are expected to pay large sums of money to Helb even before securing employment or becoming financially stable.

Currently, the loanee is to begin repayment of the loan within one year of completing their studies.

Further, the committee in its report pointed out that the current interest rate of four percent charged is lower than the average inflation in the country which in 2020 stood at 5.41 percent hence the actual value of amounts disbursed has eroded overtime since the annual interest rate charged is lower than the inflation rate.