Antecedents of Loan Recovery of Higher Education Loans in Kenya

Abstract

Purpose: The primary source of funding for higher education in Kenya is the Higher Education Loans Board (HELB). Failure to repay loans by university graduates poses a significant challenge, hindering the availability of financial resources for other deserving students. This lack of loan recovery undermines the sustainability of the education fund, consequently preventing many loan applicants from obtaining the financial support intended to cover their educational expenses. The default rate for student loans in Kenya stands at 40%. The main aim of this research was to examine the factors influencing the recovery of higher education loans in Kenya. Specifically, the study aimed to identify the demographic, economic, and loan repayment factors that impact the recovery of these loans.
 Methodology: The investigation centered on quarterly data spanning a decade (2012 to 2022) obtained from the Higher Education Loans Board. The data collection encompassed loan repayment factors, economic indicators, demographic characteristics, and loan recovery statistics for higher education loans. The study was based on secondary data sourced from quarterly reports of the Higher Education Loans Board spanning the same ten-year period (2012 to 2022). The data was analyzed by use of descriptive and inferential statistics since the secondary data is a time series in nature. A 0.05 significance level (95% confidence interval) was the error variance used. Results were then presented in tables, diagrams and charts.
 Results: Given the economic factors, the findings revealed that inflation rate has a negative (-0.117) and statistically insignificant (p > 0.05) relationship with loan recovery of higher education loans in Kenya. The correlation between the unemployment rate and loan recovery for higher education loans in Kenya was observed to be negative (-0.012) and found to be statistically insignificant (p > 0.05). Similarly, the relationship between economic growth and loan recovery for higher education loans in Kenya exhibited a negative trend (-0.114), which was also statistically insignificant (p > 0.05). Examining demographic factors, the study revealed that income level demonstrated a positive association (1.181) that was statistically significant (p < 0.05) in connection to the recovery of higher education loans in Kenya. On the other hand, the relationship between Educational Level and loan recovery for higher education loans in Kenya was positive (0.482), it was deemed statistically insignificant (p > 0.05). Turning attention to the loan repayment factors, it was uncovered that the lending interest rate displayed a significant negative correlation (-2.761) with the amount of unrecovered loans, which was statistically significant (p < 0.05). In contrast, penalty exhibited a beta coefficient of -0.016, indicating a negative relationship, although this relationship was found to be statistically insignificant (p > 0.05) in terms of its impact on the loan recovery of higher education loans in Kenya.
 Unique contribution to theory, policy and practice: To enhance the effectiveness of loan repayments, the study proposes that HELB should adopt more stringent policies and regulations, aiming to ensure prompt and efficient loan recovery processes. The study recommends HELB alongside the Ministry of Finance and Ministry of Education to develop and promote financial literacy programs that target borrowers to improve their understanding of loan repayment obligations, interest rates, and financial management. The study recommends the strengthening of Financial Aid Programs which can include increasing the availability of grants and scholarships specifically tailored to support students with lower income levels or from marginalized communities