An Act of Parliament to amend the HigherEducation Loans Board Act.

Clause 2

Amendment of section 2 of No. 3 of 1995
Section 2 of the Higher Education Loans Board Act (“the principal Act”) is amended by inserting the following new paragraphs in their proper alphabetical sequence:

“disability” includes any physical, sensory, mental, psychological or other impairment, condition or illness that has, or is perceived by significant sectors of the community to have, a substantial or long-term effect on an individual’s ability to carry out ordinary day-to-day activities.

“youth” means a person who:

a. has attained the age of eighteen years; but
b.has not attained the age of thirty-five years.
The definition of the terms “disability” and “youth” are consistent with the Constitutional definitions of the said terms.
Clause 3

Amendment of section 6 of No. 3 of 1995
Section 6 of the principal Act is amended in paragraph (c) by deleting the words “rate of interest and” appearing immediately before the word “recovery”.This proposal prevents the Higher Education Loans Board (“HELB”) from prescribing high interest rates on students.

Previously, HELB had unsuccessfully sought to charge loans using the Central Bank of Kenya base rate which is 9.5%.

Such a move would lead to an increase in defaults on loan payments. Furthermore, it would impose a heavy financial burden on graduates.
Clause 4

Amendment of section 15 of No. 3 of 1995

Section 15 of the principal Act is amended:

a. by inserting the following new subsection immediately after subsection (1):

“(1A) Notwithstanding the provisions of subsection (1) (b), no interest shall be charged on the principal amount advanced to the youth and persons with disabilities until they have secured their first employment upon completion of studies”.

b. in subsection (2) by deleting the words “within the stipulated time” appearing immediately after the words “subsection (1)” where they first appear and substituting thereof the words “upon securing employment or within five years after completion of his studies”.

This is a good proposal as it seeks to extend the repayment period of the HELB loan.

Currently, both employed and non-employed graduates are required to start paying their HELB loans one year after graduation.

This proposal will ease the financial burden of graduates who are yet to find jobs.

Section (1A) is discriminatory. It implies that a student who is above the age of thirty-five years is not entitled to a HELB loan.

This proposal violates article 27 of the Constitution as it seeks to discriminate university students on the basis of age.
Clause 5

Insertion of new section in No. 3 of 1995
The principal Act is amended by inserting the following new section immediately after section 14:

“14(A) The maximum interest to be charged by HELB on the principal amount advanced to a loanee shall not be more than three per cent per annum”.

We propose the addition of a sub-clause providing for the applicability of the in duplum rule to HELB loans i.e., the interest on a loan ceases to accrue once it’s equal to the principal loan amount.

The in duplum rule is governed by section 44A of the Banking Act.

HELB loans tend to accrue interest beyond the principal loan amount. This places a heavy financial burden on graduates to pay the loans.

In Anne J. Mugure & two others v Higher Education Loans Board (2022) eKLR, the Court (Mabeya J) held that the in duplum rule should be applicable to loans advanced by HELB to students. This meant that section 15(2) of the principal Act would fall afoul of this to the extent that it leads to interest rates and fines becoming more than the principal amount advanced.

The incorporation of this proposal ensures that the Bill complies with the above judgment and section 44A of the Banking Act.
Secondly, a reduction of the interest rate eases the financial burden on graduates. This is a good move.

HELB has unsuccessfully sought to charge interest rates using the Central Bank of Kenya base rate. Such a move would lead to several graduates defaulting on their loan payments.

An argument has also been made to introduce interest-free HELB loans. Such a proposal would deplete the HELB Fund as the government would not be getting a return on its investment.
Proposed additionFor section 15 (2) of the principal Act, we propose a reduction of the fine charged for defaulting on HELB loans.Currently, a graduate who defaults on a HELB loan pays a monthly fine of five thousand shillings.

This amount is very high. We propose reducing this amount to lower amount, perhaps one thousand shillings.