President rejects bill aimed at cheaper student loans

Kenya university students have suffered a big blow after President Uhuru Kenyatta postponed consideration of a bill that would have made student loans cheaper and extended the repayment period.

The president sent back the Higher Education Loans Board (HELB) Amendment Bill 2020 for reconsideration by parliament, at a time when the National Assembly is on recess ahead of the August general elections.

This means students will have to wait until after the elections when the National Assembly resumes its work, before it will look at the President’s recommendations on the bill which, among other things,
seeks to increase the grace period for the repayment of loans to five years.

Had the proposed legislation seen the light of day, HELB, the agency that disburses loans to students on behalf of the government, would have been stopped from charging interest on the loans unless a graduate has secured a job, or five years had lapsed since the graduate left university, whichever came first.

Currently, beneficiaries of the government-backed HELB loans are required to start repaying a year after clearing campus, irrespective of whether or not they have secured employment.

This requirement has been blamed on the current high default rates as 70% of the new graduates find it hard to secure jobs after graduation, often taking three years or more.

When they don’t pay, the students are slapped with hefty penalties, currently set at US$50 for every month defaulted. They are then also listed as defaulters at credit reference bureaus.

Reduction in interest charged

The bill, which was seeking to amend the Higher Education Loans Board Act, also wants to waive the imposition of interest on the principal amount of a loan advanced to the youth and persons with a disability until such time as they have secured their first employment.

In one of the most transformative changes, the proposed law also seeks to reduce the interest charged on student loans from the current four to three percent.

This would make it more affordable for poor students to seek and access the loans at charges way lower than the market commercial lending rates which average 12% in Kenya.

The bill, which had been tabled in Parliament via a private members’ motion, had been touted as a game-changer as it would have introduced a huge relief for recent graduates and future students who, in most cases, struggle to repay the loans even after securing jobs due to pressing economic pressures among the youth in Kenya.

While presenting the bill in Parliament, Gideon Keter, the MP who sponsored it, reckoned that it was taking an average of six years for fresh graduates to secure gainful employment and even then, the interest chargeable was prohibitive.

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