HELB Rejects Bill Seeking To Reduce Loan Interest Rates On Students

By Getrude Mathayo / Published September 15, 2023 | 11:23 am

The Higher Education Loans Board, HELB, has opposed the proposed amendment Bill 2023 sponsored by Machakos MP Joyce Kamene that seeks to ease the financial load on fresh graduates.

The Bill proposed to reduce the financial burden on recent graduates who are expected to pay large sums of money to the Higher Education Loans Board even before securing employment or becoming financially stable.

Under the current system, repayment of undergraduate loan repayment starts within one year of completion of studies.

Machakos MP Kamene had proposed an extension of five years for youths and persons with disabilities for they to be able to repay the loan after securing employment.

According to HELB CEO Charles Ringera, if the Principal Act is amended, other students in need of funding will not be able to get the funds as there will be a delay in loan repayment. He added that HELB relies on loan repayment to fund other students in need of the money.

“Loan repayment is key to Helb’s mandate of creating a revolving fund for the benefit of another deserving student. Extending the grace period to five years will mean funding fewer students because income from loan repayment goes towards funding other needy students.” Ringera said

Kamene proposed reducing the interest rate on loans advanced to young adults and individuals with disabilities from the current four percent to three percent per annum.

“The percentage of interest that may be charged on the loan advanced to be fixed at not more than three percent per annum,” reads the Bill.

The board disagreed with this proposal, citing potential negative effects on its financial sustainability. They argued that reducing the interest rate to three percent could impact the revolving fund adversely, hampering HELB’s capacity to support financially needy students. HELB CEO said the current four percent is already an annual inflation rate.

Ringera said that reviewing the interest rate downwards and the proposed delay in repayments will have an adverse impact in terms of cash flows to fund students where currently 37 percent of the student loan budget is from AIA (Loan Recoveries). It means HELB will need more capitation from the National Treasury to make up for the loss in interest.

“A judgment delivered on August 19, 2023, by Justice Alfred Mabeya of the High Court of Kenya fixed Helb interest and penalties charged, in that the maximum that Helb can charge penalties and interest is limited to the principal amount as the time of default”, he said.