Slashing Helb interest is bad policy

Last week, the National Assembly’s Education committee rejected proposed changes to the Helb Act, which sought to slash interest charged on student loans from the current four to three percent.

The proposal also sought to change the grace period for the student loan repayment increased from one year after completion of studies to five years and defaulters exempted from paying the $50 fine.

This move to reject the change in law has drawn bitter condemnation from some Kenyans on social media claiming that the Members of Parliament were inconsiderate.

The proposal comes at a time when Kenyans are struggling to service their loans due to the global Covid-19 pandemic that has seen raising default cases and low repayment.

To those who feel let down by the National Assembly’s Education committee, I seek to introduce them to aconcept known as ‘opportunity cost’, which is simply the cost incurred when investing one thing over another and it plays an important role in financial management.

In the case of the Helb loan, these Kenyans are applying the opportunity cost concept but from an individualistic perspective.

With suppressed income due to the pandemic’s economic effects, they feel they would save some money if the committee accepted the proposal to cut the interest by one percent leaving them with some money they could spend or invest in something else they had foregone.

Newsflash to them: unfortunately, the issue we are handling here is a national policy and not a personal finance balancing act. If the proposal had passed as it was, Helb would have taken a loss of Sh693 million annually and Sh3.4 billion in five years.

Now, these are not just figures. Behind those numbers are more than 12,000 Kenyans (at an average disbursement of Sh50,000) who would have missed out on Helb financing.

Yes, servicing the Helb loans has been a pain in their pockets. But what they are requesting is for the nation to forgo financing of future students for their financial convenience today. So from an overall national education policy, this is very selfish and myopic of them.

They would have had a case if Parliament had a plan to increase allocation to Helb with additional Sh693 billion every year to cover for that write-off.

But that is not the case and in fact Helb is already struggling to mobilise funds to remain self-sustaining, with government allocation remaining meagre.

Recent statistics from Helb show that 438,247 loan accounts worth $53 million had matured for repayment but only 156,961 accounts valued at $23 million were repaying their loans, 68,093 loanees holding $65 million are already in default.

So, Helb losing $6.5 million every year due to the interest rate slash would have been devastating and rendered it unable to discharge its mandate.

Even if Parliament were to allocate additional funds to Helb, the board is already overwhelmed by demand from students seeking financing.

Also, the current allocation to students has been found to be little to cover for full expense. In 2018, Helb through a commissioned study found that a student in a university today requires about $1,212 per annum to study comfortably. This is estimated to be double the current allocation.

Putting all these factors in play, Helb is in a dire position and what we should be looking at are reforms to make it more effective in raising revenues.

The board is now planning to float an education bond for onward lending to university students. So a steady stream of revenue is needed for the bond to provide a positive signal to investors.

The stated intention of the Bill was to reduce the financial burden on recent graduates who are expected to pay large sums of money to Helb even before securing employment.

But the Bill failed to address that identified problem and was instead putting Helb in a deeper quagmire.