Shifting the debt from universities to students

Over the past few years, the government has been underfunding university education, leading to a financial crisis that has brought Kenya to a critical juncture.

According to the Differentiated Unit Cost (DUC) funding model, the government had committed to covering 80 percent of the financial needs of students who scored the mandatory C+ grade in the Kenya Certificate of Secondary Education (KCSE) exams.

However, in practice, the government was only disbursing 48 percent of the required funds, as it aimed to fully support all students. Unfortunately, this has led to a reduction in government funding for universities and a decrease in self-sponsored student enrollments.

Today, universities are facing financial difficulties, and the government, due to resource constraints, has been compelled to introduce the most significant higher education reform at a time when the country is grappling with severe economic challenges that threaten to disproportionately affect the poor and women.

The combination of reduced state funding and mismanagement of public universities, coupled with rapid expansion during a decline in student enrollment, has left many of Kenya’s public universities in dire financial straits.

Lecturers’ demand higher salaries

The higher education institutions have been struggling to cover their expenses, fulfill statutory deductions, including Pay as You Earn (PAYE), VAT, and pension contributions. Top universities are financial constrains constraints, especially in light of increasing demands for higher pay. This has led to lecturers in universities such as UoN, JKUAT, Moi, and Egerton issuing strike threats in the recent past.

University administrations have been compelled to consider significant fee hikes, discontinuing some courses, merging faculties, and shutting down satellite campuses in an effort to reduce operational costs. Kenya is home to 31 chartered universities with 64 campuses spread across the country and seven constituent colleges.

According to a report presented by the National Treasury on government investments, there are 69 corporations in the education sector, including universities, polytechnics, and technical colleges. These institutions received a total of Kes61.8 billion, accounting for 28 percent of all transfers and recurrent grants.

The Treasury disclosed that most of these funds were allocated to public universities, which still required an additional Kes6.9 billion to meet their total expenditures. This underscores the financial challenges faced by these institutions, leading them to seek higher student fees and costly commercial loans.

University of Nairobi faced the most substantial shortfall of Kes2.17 billion, Kenyatta University needed an extra Kes2.13 billion for its operations, and Jomo Kenyatta University of Agriculture and Technology (JKUAT) had a Kes1.4 billion deficit.

Egerton University required an extra Kes1.3 billion to remain financially viable, while Moi University faced a Kes1 billion deficit. Additionally, the Technical University of Kenya experienced a shortfall of Kes769 million to sustain its operations.

Instead of increasing taxes, addressing corruption loopholes, or facilitating income-generating ventures in research for the universities, the government sought bailout funding from the International Monetary Fund and the World Bank.

Shutting down parastatals

As the funders, the World Bank in its recommendations as part of priority parastatal reforms called on the government to reduce the number of state corporations including universities as a means of curbing public spending

The World Bank said cutting universities and shutting down parastatals that have made losses for three year consecutive should be the first step in curbing spending.

“Address proliferation of SCs and rationalize commercial and non-commercial SCs. For example, measures to addressing overlapping mandates and consolidating SCs in the education sector could improve the efficiency of public spending on higher education and reduce spending pressures,” the World Bank said in the Kenya State Corporations Review.

“Moreover, given the declining profitability and increasing financial risks of commercial SCs, exacerbated by COVID-19, and the increasing government lending and debt guarantees to commercial SCs, accelerating the commercial SCs rationalization agenda could help plug losses to the exchequer while increasing overall economic efficiency,” the World Banks said.

“A focus could be placed on systematically poorly performing SCs that have recorded persistent losses for an extended period (e.g., the last three consecutive years),” the World Bank said.

The financiers now demanded the government cease subsidizing university education which according to the International Monetary Fund (IMF) merely benefited rich Kenyans.

“Post-primary education represents a lesser share (32.2 percent of recurrent spending for secondary and 14.28 percent for tertiary), and often requires large co-payments. Nevertheless, as benefits of spending on public universities mostly accrue to richer families, improving targeting would increase the impact on women’s education,” IMF said in the Selected Issues Paper on Kenya.

The government has now moved to implement these reforms that would see students take up huge loans to bear the total cost of their university funding in a bid to rescue the struggling varsities and end education subsidies.

Market realities on cost of education

Firstly, the prolonged duration without a fee review by universities – spanning over two decades – created a disconnect with the present market conditions, obscuring the actual cost of delivering higher education.

To address this, the government revised the university fee structure, pricing a medicine degree at Kenyatta and Moi universities at Kes612,000, whereas a similar program would cost Kes539,750 at the UoN annually.

Additionally, Kenya faced challenges in funding student loans, as HELB Chief Executive Charles Ringera informed a parliamentary committee of the need for Kes5.7 billion; otherwise, they would be unable to support the education of 140,000 promising Kenyan students this year.

To tackle this challenge, President William Ruto introduced a “student-centered” approach to support students from financially disadvantaged backgrounds, requiring other students to finance up to half of their fees through loans. However, Kenya should exercise caution regarding the accumulation of excessive debt burdens on students, as seen in the American student debt crisis, where federal student loans exceeded $1.6 trillion by September 2022, owed by approximately forty-eight million US students.

As the new university funding model shifts towards an expectation for students to shoulder loans for their education, the risk of burdening a group of young people who may not fully comprehend the implications of such debts becomes a concerning prospect. Kenya, being a relatively economically disadvantaged country, combined with high unemployment rates, results in many students struggling to meet their student loan obligations, setting off into adulthood with the weight of negative credit ratings. Currently, among HELB beneficiaries, there are over 120,000 defaulters, resulting in losses of approximately Kes8.5 billion.

Leaving behind the poor

The new model also risks leaving behind low-income households, which can scarcely afford what the state considers a “small contribution.” For example, a parent with a child categorized as needy would need to pay approximately Kes43,000 annually to pursue a medicine course at KU or Moi.

This is particularly concerning in a country where, on average, working women receive 13 percent less schooling than men. This educational gender gap widens to 28 percent for poorer women.

The situation has led to parents panicking and involving Members of Parliament in WhatsApp groups to contribute towards addressing this crisis. Legislators are taking note and voicing concerns, warning that many students eligible for courses such as medicine, engineering, pharmacy, and other technical degrees may have to drop out due to the high costs.

Washington Okeyo, the Vice-Chancellor of the Management University of Kenya, has also highlighted that this formula will further burden parents with university fees and may sideline students studying in private universities, potentially reducing the skilled workforce that has placed Kenya ahead of its regional peers for years.

There’s a pressing need to reform university education financing to prevent a decline in the quality of education in our higher learning institutions.

This necessitates radical reforms in universities, including a review of student fees, the exploration of new income sources, increased state funding, and the strengthening of the Higher Education Loans Board (HELB) to bolster education financing.

However, while a fee review, encompassing tuition and accommodation, is essential, universities should exercise caution in implementing fee hikes. The review should be reasonable and affordable for parents to meet the cost of educating their children.

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