LOAN RECOVERY OF HIGHER EDUCATION LOANS

Abstract

Higher Education Loans Board (HELB) is the major source of financing higher education in Kenya. Non-repayment of the loan among university students after they have graduated is a major drawback on funding education for other needy students. Non-recovery of loans leads to non-sustainability of the education fund which leads to a number of loan applicants unable to get the loans which are meant to assist them cater for their learning expenses. In Kenya, 40% of students’ loans are in default. The main objective of the study was to investigate the antecedents of loan recovery of higher education loans in Kenya. Specifically, the study sought to determine demographic factors affecting loan recovery of Higher education loans in Kenya, the economic factors affecting loan recovery of Higher education loans in Kenya and the loan repayment factors affecting loan recovery of Higher education loans in Kenya. The study was informed by the life-cycle model, Neoclassical development theory and ability-to-pay theory. The study took the quantitative approach drawn from the positivism research philosophy. The study targeted the quarterly data from the Higher education Loans Board for the last 10 years (from the year 2012 to 2022). Items to be collected were quarterly data on loan repayment factors, economic factors, demographic factors and loan recovery of higher education loans. The study used secondary data which was collected from the Higher education Loans Board quarterly data reports for 10 years (from the year 2012 to 2022). The data was analyzed by use of descriptive and inferential statistics since the secondary data is a panel in nature. A 0.05 significance level (95% confidence interval) was the error variance used. Results were then presented in tables, diagrams and charts. 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. Unemployment rate had a negative (-0.012) and statistically insignificant (p > 0.05) relationship with loan recovery of higher education loans in Kenya. Economic growth also had a negative (-0.114) and statistically insignificant (p > 0.05) relationship with loan recovery of higher education loans in Kenya. Given the demographic factors, the findings revealed that income level has a positive (1.181) and statistically significant (p < 0.05) relationship with loan recovery of higher education loans in Kenya. Educational Level also has a positive (0.482) but insignificant (p > 0.05) relationship with the loan recovery of higher education loans in Kenya. Given the loan repayment factors, the findings revealed that lending interest rate has a negative (-2.761) and statistically significant (p < 0.05) relationship with the amount of unrecovered loans. Interest penalty had a beta coefficient of -0.016 suggesting a negative and statistically insignificant (p > 0.05) relationship with loan recovery of higher education loans in Kenya. The study recommends HELB to implement stricter policies and regulations to ensure timely and effective loan repayments. 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.