Students’ loan scheme good but…

It is a general perception that university education is the epitome of success.
But with the obvious financial disparities between rural and urban, higher education is often an unattainable dream.
In an attempt to level the ground, government established a Students’ Loan Scheme, where qualified but needy students can continue to achieve their long held dream.

The scheme, which supplements other free education opportunities such as UPE and USE, covers tuition, functional and research fees and the loans are given at a value retention fee of 7 per cent at the current inflationary rate.
Beneficiaries have a grace period of one year after leaving school with a monthly payment of 30 per cent off their salaries.
Michael Wanyama, the executive director, Higher Education Students Financing Board (HESFB), the body in charge of distributing the loans, says the Credit Reference Bureau (CRB) will monitor repayment as “every student on the Scheme is listed on the CRB”.

CRB measures the credit worthiness of borrowers in Uganda.
However, Edward Kirumira, principal, College of Humanities and Social Services, Makerere University, is worried about what would be the cost for monitoring repayment of the borrowed money.
“The fact that government is investing in its human resources will result in a positive impact on the economy but the challenge will come in monitoring the Scheme. Government needs to closely watch the management of this Scheme so that the monitoring costs do not outweigh the benefits to students.”

The target
The scheme targets needy students applying for science programmes at public universities. With poorly facilitated laboratories and a disproportionate teacher-student ratio in rural secondary schools, it is conceivable that students from such schools barely excel in science subjects.
There is a risk that a majority of those who apply for loans may actually come from families which can afford to pay their tuition fees, thus putting an unnecessary strain on the economy.

But the risk of unemployment is a major challenge even as the scheme is designed to address human resource gaps, especially in areas where students are most likely to get jobs and earn an income.
Currently the economy can’t absorb the more than 80 per cent of literate and illiterate youth who are unemployed, basically because many of those who have gone to school have no practical skills to create their own jobs.
As such, there is bound to be questions about the long term impact of the Students’ Loan Scheme on the economy.
Although there have been some indications that some of the beneficiaries will be incorporated into the public service, Wanyama says that is outside the mandate of HESFB.

“Ours is to support needy students,” he says, leaving one key question unanswered. Who will be in charge of ensuring that these young people are employed to be able to repay the loan?
According to Wanyama, those who will fail to find employment on time can update HESFB to get extension of repayment period but analysts believe much of these loans will be written off given the country’s deep unemployment abyss.
However, Wanyama says the risk of defaulting will be low as the law shall require employers to update HESFB on all their employees statuses.

“This will help us to check through our database to know who has received a loan from us and is defaulting,” he says.
But the provision does not cater for those who survive on one time business deals or those who work for small businesses that are not captured in the formal sector.
Even still there will be those who will travel to work out of the country. How these will be monitored is another challenge.

The challenge of a low saving culture
Most challenging though is the continued low saving culture, which by Ugandan standards, advancing socially means having enough left overs from monthly bills, to spend on luxuries.
Therefore new employees who are already indebted will find it hard to fit in such a low savings index and later on repay the loans.

“Beneficiaries should be given incentives to encourage them to begin repaying loans while still studying if they can,” says Kirumira, “otherwise, if they wait for the end of the grace period and the debt accumulates they can easily be drawn into the growing culture of debts.”
Therefore without personal savings, innovation and entrepreneurship will be difficult, which could again strain the economy in terms of employment.

Therefore, Kirumira says, “beneficiaries need to be assured that they will have the capacity, in terms of available employment, to pay the loans”.
“There have to be guarantees that payback can happen. You cannot spend a lot of money on mechanisms to ensure that a few loans are repaid when there is no avenue for repaying. This is not good for the economy.”
Government can also subsidize tuition fees for specific courses to ensure that many students benefit from cheaper education, instead of a scheme that caters for about 1,000 students.

There is also need to control the spiraling cost of university education, which in turn could limit the number of employed people living in debt.
But beyond this, Wanyama says, beneficiaries need to appreciate that they have been helped to achieve their dreams, thus “paying back means that other students will also benefit from the scheme”.

Bits about the loan scheme
The Students’ Loan Scheme is a government programme that seeks to assist needy students across Uganda.
The programme also seeks to address Uganda’s human resources gaps through recruiting students into science courses and those that are able to create employment.
Repayment of the loans will be supervised by the Credit Reference Bureau, a credit worthiness rating firm in Uganda’s banking sector.