MPs rejected the Higher Education Loans Board Amendment Bill, 2020, that sought to lower interest rates from four per cent to three per cent.
According to a report by the National Assembly’s Education Committee, more students are likely to miss out on funding since the recovered money contributes to the annual student financing.
Loan recovery reached Sh4.5 billion in 2019-20 that was used to fund 121,622 students at an average of Sh 37,000 per year.
If lawmakers approved the reduction, the board was likely to get into a funding deficit where over 18,730 needy students would miss out on the funding annually.
The board might also be looking at Sh693 million annual loss and Sh3.4 billion loss in five years.
“If the interest rate is waived downwards, Helb’s financial capacity to fund students will be grossly affected,” the report reads.
The committee chaired by Busia Woman Representative Florence Mutua further notes that the interest rate on undergraduate loans is lower than the annual average inflation in the country which stands at 5.41 per cent this year.
“The actual value of the amounts disbursed has been eroded over time since the annual interest rate charged is lower than the inflation rate,” the report states.
The report also sought clarity on whom the power to set interest on Helb loan will be vested and how it will be exercised.
University and Education Research Principal Secretary Simon Nabukwesi submitted that the bill did not clarify what psychological or other impairment was referred to as perceived by a significant sector of the community.
This would subject loan applicants’ rate approval to a third party that would risk reducing Helb’s revenue if the interest is varied downwards.
Since the establishment of Helb, almost one million students have benefitted from the loans, accumulating over Sh116.1 billion.
Helb recorded almost 600,000 mature loan accounts worth Sh69.3 billion and Sh46.8 billion held by almost 500,000 loanees had not matured for repayment by February 28 this year.
The Helb (Amendment) Bill, 2020, had also sought to increase the grace period for repayment of the loan to five years.
Currently, Helb loan beneficiaries are required to start repaying the loans within the first year of completing their studies or graduating, a requirement that has left thousands of jobless beneficiaries in default.