HELB Rejects Bill To Reduce Interest Rates & Delay Repayments
Joyce Kamene of Machakos proposed an amendment to Bill 2023, but the Higher Education Loans Board rejected it.
The bill proposes to reduce the financial burden placed on recent graduates who are expected to pay large quantities of money to the Higher Education Loans Board before securing employment or achieving financial stability.
Currently, undergraduate loan repayment begins within a year of degree completion.
Kamene proposed a five-year extension for youths and people with disabilities to repay their loans after obtaining employment.
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However, Charles Ringera, the chief executive officer of Helb, stated that if the Principal Act is amended, other students in need of funding will be unable to receive the funds due to a delay in loan repayment.
According to him, Helb relies on the loan repayment to finance other students in need of financial assistance.
Ringera stated that loan repayment plays a crucial role in fulfilling Helb’s mandate, which involves establishing a revolving fund to assist future deserving students.
According to Ringera, extending the grace period to five years would reduce the number of students receiving funding since the income generated from loan repayment supports other financially disadvantaged students.
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Kamene also proposed reducing the interest rate on the principal amount of loans granted to youths and people with disabilities from the current 4% to 3% per year.
The bill states that the maximum annual percentage rate of interest that can be levied on a loan must not exceed three percent.
Nonetheless, the board disapproved of the proposition, stating that it jeopardized the management’s viability.
The Board noted that reducing the current rate to 3% will have a negative impact on the revolving fund. This will therefore diminish Helb’s ability to provide financial aid to students in need.
According to Ringera, the current four percent inflation rate is already an annual rate.
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Ringera expressed concerns that reducing the interest rate and delaying repayments would negatively affect cash flows, given that currently, 37 percent of the student loan budget comes from AIA (Loan Recoveries).
This would require Helb to request additional funding from the National Treasury to compensate for the interest income loss.
He also mentioned a recent judgment delivered on August 19, 2023, by Justice Alfred Mabeya of the High Court of Kenya.
The judgment set limits on the interest and penalties that Helb can charge, specifying that the maximum amount charged in penalties and interest cannot exceed the principal amount at the time of default.
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HELB Rejects Bill To Reduce Interest Rates & Delay Repayments