Students in tertiary institutions have been dealt a blow after a national assembly committee rejected a Bill proposing lower interest rates and a longer repayment grace period on higher education loans.
In its report, the National Assembly’s Education committee rejected the Higher Education Loans Board (Helb) Bill, 2020, warning that if adopted, the state agency stands to lose Sh693 million annually and Sh3.4 billion in a period of five years.
Proponents of the Bill which was tabled in Parliament in October last year sought to make changes to the HELB Act and slash interest charged on the loans to three from the current four percent.
The Bill also sought to increase the period in which a beneficiary is required to start making payments to five years.
Currently, students in Universities and Colleges are required to start repaying their loans one year after completing their studies.
“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.
Proponents of the Bill had indicated that the proposals were meant to cushion jobless youth from tough penalties including Sh5,000 monthly fine for defaulters and the risk of being listed with the Credit Reference Bureau (CRB).
The committee also poked holes in the proposal to review the Helb Act and take away the power of setting the interest charges from the state agency.
According to the committee chaired by Busia woman representative Florence Mutua , the proposal to set the charges in law 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 further noted that reducing the interest rates would affect the institution’s ability to finance other students joining tertiary institutions every year.
“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,” the committee added.
The committee further argued that the current interest rate of four percent charged is lower than the average inflation in the country which stood at 5.41 percent in 2020, noting that the actual value of amounts disbursed has eroded overtime since the annual interest rate charged is lower than the inflation rate.