Ensure Helb bond doesn’t make student loans costly
Thursday May 26 2022
In the absence of increased funding from the government, it is understandable that the Higher Education Loans Board (Helb) is seeking to raise more resources to bankroll university students’ education through the issuance of social bonds.
The agency plans to raise Sh22 billion from debt investors, with the proceeds to be spent on purchasing laptops for students.
The bond issuance is likely to succeed, given that the government will guarantee the debt.
What Helb needs to do is ensure that the commercial borrowing will not cause it to raise the interest rate it charges students.
This means that the government should ultimately cover the extra costs of issuing the bond whose interest rate is likely to be above 11.5 percent in line with similar securities issued by the Treasury.
Loans disbursed to undergraduate students are charged an interest rate of four percent. This means that the bonds that will be issued by Helb will alleviate its funding shortfall but will not be sustainable unless the government steps in.
Helb should maintain its current affordable interest rates that will ensure more students access higher education and are able to service the loans once they enter the labour market when they typically start with low salaries.
If the interest rate is increased because of the impact of the commercial borrowing, the default rate will likely worsen and a section of qualifying learners will shy away from taking the loans in the first place.
That will hurt the goal of expanding educational opportunities to all regardless of their economic background.
Assuming Helb will continue with its bond issuance programme, it needs to channel more of the proceeds to fund critical needs such as tuition fees.
E-learning, which is important in the digital age, can be supported through other means, including well equipped on-campus IT labs.
This makes sense now that in-person learning has resumed after the Covid-19 pandemic receded.
It is not a must that each student owns a personal computer, especially given the high cost at which Helb is required to make this possible.
The move by Helb to issue bonds is a good strategy to alleviate its biting cash crunch. How the programme is managed will determine its success or failure.