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Renewed hope as Bill seeks lower interest on HELB, 5-year Loan Holiday

Interest charged on college student loans will be cut to three percent and the grace period for repayment increased to five years after graduation if lawmakers approve changes to the law.

Under the proposed changes to the Higher Education Loans Board (Helb) Act interest on the loans will fall from four percent to cushion jobless graduates from the Sh5,000 monthly fine for defaults.

Currently, graduates are required to start repaying the student loans within a year after graduation in what has left thousands of beneficiaries in default and at risk of being blacklisted with the credit reference bureaus (CRB).

The proposed changes to the Helb Act come against the backdrop of job cuts and a freeze in hiring plans in corporate Kenya, denying fresh graduates the employment income they need to settle their student loans.

“The aim of this proposals is to reduce the financial burden on recent graduates who are expected to pay large sums of money to Helb even before securing employment or becoming financially stable,” says the Bill that has been tabled in Parliament.

“It sets the percentage of interest that may be charged on the loan advanced at three percent. It also provides that the penalty charged on defaulting of the loan shall be charged after securing employment or five years after completion of studies.”

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The rate of interest charged on the student loans will now be set in law, taking away the power of setting the charges from Helb—whose responsibilities include controlling credit costs.

The changes look set to hurt Helb’s finances as it relies on loan recoveries to support university and college students with fees and subsistence loans, which rise to a maximum of Sh50, 000 annually.

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Helb is supposed to be a revolving fund, with beneficiaries who have completed their studies paying back the loans to support a fresh group of students.

Beneficiaries are currently expected to start repaying one year after completing studies and risk blacklisting with CRBs for defaulting.https://datawrapper.dwcdn.net/MVCrU/2/

Loan defaulters have weakened the agency’s financing capacity, prompting allocation cuts.

Early this year, the agency said it was pursuing some 78,328 defaulters holding Sh7.7 billion as at December 31 last year.

There has been a sharp rise in enrolment of students in public universities, straining resources at Helb whose capitation has been growing at a slower pace.

University intake increased to 122,831 last year from about 72,000 in 2014, pushing up the demand for loans.

Enrolment in public universities has increased from 196, 737 in 2012 to 412,845 last year while private varsities increased from 54, 459 in 2012 to 96, 628 last year.

This has been buoyed by the approval of new degree courses and the setting up of new campuses, making it difficult for helb to meet the needs of continuing students because allocation from the Treasury has not kept pace with the intake.

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Most of the students come from poor backgrounds and require financial assistance to meet their tuition fees and upkeep. The underfunding has prompted protests from students in recent years.

About 2.23 million workers lost jobs in six months to June when Kenya imposed a coronavirus-induced lockdown that led to layoffs and pay cuts.

Workers on payroll or business dropped from a peak of 18.1 million in December to 15.87 million in June, reflecting significant business disruptions in the wake of the pandemic.

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Young people were the hardest hit by the job cuts compared to those aged above 35 years.

The hiring freeze is a major worry for jobseekers, especially the close to one million young people who graduate from various educational institutions every year.

The number of formal jobs generated by the economy fell to a seven-year low in 2019.

The economy generated only 78,400 new formal jobs last year, but informal jobs rose from 744,000 in 2018 to 767,900 last year.

Figures for this year will be hit by the effects of the coronavirus pandemic.

This report was first published here

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