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

Kenya's loan scheme promotes inequity by limiting access to the loans to students who have qualified to enter state universities. Also, a study carried out in Kenya revealed that the high income and middle income groups were disproportionally represented at the university in terms of enrollment. The poor were the least represented.44 However, there is evidence to indicate that the larger proportion of tax revenue that subsidizes higher education in Kenya comes from the indirect tax paid by this low income group. The poor, as an income group, form about 80 percent of the taxpayers in Kenya. Therefore, the low income group's contribution toward tax revenue that finances education is quite sizeable although they are poorly represented at the university. This means that the equity objective is not achievable under the current loan scheme.

The loan scheme also promotes inequity in that the repayment system does not consider the graduate's level of income. No income contingent loan program exists in Kenya like it is in the U.S. The loan program is also inefficient since the program that was initially meant to be a revolving fund has become a consumption fund. The government has to keep on providing additional funds.

The fact that the U.S. loan programs are open to all students-that is, they are based on need only-meets the goal of equity. As mentioned earlier in this paper, besides the federal and state sources, private enterprises and nonprofit making organizations in the U.S. provide loans to students. This captures equity goals too. In Kenya, university education is a purely government concern. No private enterprises lend funds to students. To move toward equity, this is an issue that the Kenya government needs to consider. Kenya could follow the Nigerian example of involving the private sector by establishing an Education Bank. The Education Bank was expected to play the role currently performed by the Higher Education Loans Board. It was expected that qualified bank staff would be able to administer the university loan program on behalf of the Government of Kenya. The bank could also engage in profit-making activities, using the income earned to increase loans to students enrolled in all institutions of higher learning throughout the country. The Education Bank was also expected to be more effective than the Government of Kenya in keeping record of loan recipients who had completed their studies and forcing them to repay their loans. 45

CONCLUSION

Although U.S. loan programs are faced with the critical issue of nonrepayment, they provide important lessons for Kenya. The two most important are: (1) Kenya should engage the private sector in the financing of education; and (2) it should base the loan program on financial need in order to meet equity objectives. By way of policy changes, we make the following recommendations which if implemented can significantly improve efficiency and equity of the Kenyan student loan program.

Student loans should only be given to needy students. Kenyans who can afford to pay should be encouraged to do so.