A comparison of the efficiency and equity implications of university loan programs in the United States and in Kenya

Journal of Third World Studies, Fall 2001 by Nafukho, Fredrick Muyia, Verma, Satish

The University Student Loan scheme was introduced in 1974. Its major objectives were to: (1) help reduce government subsidies for higher education; (2) encourage efficiency and use of the country's limited financial resources; (3) help expand university enrollment without imposing heavy financial burdens on the taxpayers; and (4) motivate students to work harder because of the financial obligations owed to the government.36

The loan scheme was expected to benefit the recipients by making it possible for them to obtain a university education. The training obtained from the university was expected to improve the individual's ability to secure and retain employment, increase life-time earnings, and consequently increase national wealth. The graduates' higher earnings were expected to significantly increase the pool of public loan funds for education, through the higher tax revenues that the government was expected to collect from these highly skilled workers. Since its inception, the scheme has enabled many Kenyan students to educate themselves and improve their skills. As shown in Table 4, from 1974 to 1991, over 180,000 students were able to attain college through the loan scheme.

EFFICIENCY AND EQUITY IMPLICATIONS OF STUDENT LOAN PROGRAMS IN THE U.S. AND KENYA

Although the objectives for starting student loan programs in the U.S. and Kenya were noble, the programs in both countries have been faced with several efficiency and equity issues. In the U.S., for instance, the loan programs appear to have achieved equity goals since all students entering post-secondary institutions (including private institutions) can apply for various types of loans discussed in this paper. In the Kenyan case, however, the loan scheme is not extended for students in national polytechnics, and other post secondary institutions including private universities.37 If equity is looked at as fairness 38 then the loan scheme in Kenya is unfair to the majority of students enrolled in other post-secondary institutions besides the state universities.

Until the 1990/91 academic year, the Kenyan student loan scheme did not consider the social and economic background of students in state universities. All students automatically got the loans the moment they qualified for admission to the state universities. This appears to be a clear way of promoting inequity and inefficiency. Thus, scarce financial resources were being allocated to some students who did not require financial assistance at all. Starting with the 1995/96 academic year, the government set up the Higher Education Loans Board and charged it with educating the public on the fact that the loan scheme was designed primarily to assist poor students-those who could not attend the university without financial assistance. The program was not intended to subsidize children from relatively well-off families, most of whom did not require financial assistance to attend college.39 Unfortunately, the agency has not been very successful in its efforts to educate the public. Most Kenyans-students and parents-consider the loans a form of government assistance which they believe should be made available to all Kenyans regardless of their financial background.