In the absence of increased funding from the government, it is understandable that the Higher Education Loans Board (Helb) is seeking to mobilize more resources to finance the education of university students through the issuance of social bonds.
The agency plans to raise 22 billion shillings from bond investors, with the proceeds to be spent on laptops for students.
The bond issue should succeed, given that the government will guarantee the debt.
What Helb needs to do is make sure that the commercial loan won’t cause him to raise the interest rate he charges students.
This means that the government would ultimately have to cover the additional costs of issuing the bond whose interest rate is likely to be above 11.5%, in line with similar securities issued by the Treasury.
Undergraduate student loans are charged at a four percent interest rate. This means that the bonds that will be issued by Helb will reduce its financing gap but will not be sustainable unless the government intervenes.
Helb is expected to maintain its current affordable interest rates that will allow more students to access higher education and be able to repay loans once they enter the workforce, as they usually start with low wages.
If the interest rate is increased due to the impact of commercial borrowing, the default rate will likely worsen and a portion of eligible learners will be reluctant to take out loans in the first place.
This will undermine the goal of expanding educational opportunities for all, regardless of their economic status.
Assuming Helb continues with its bond issuance program, it needs to channel more of the proceeds to fund critical needs like college tuition.
Online learning, which is important in the digital age, can be supported in other ways, including well-equipped computer labs on campus.
It makes sense now that in-person learning has resumed after the Covid-19 pandemic receded.
It is not essential that every student has a personal computer, especially considering the high cost at which Helb is required to make this possible.
Helb’s decision to issue bonds is a good strategy to ease his biting cash crisis. How the program is run will determine its success or failure.