Sustainability of Higher Education Loan Funding Raises Questions

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By Jacob Mosenda

Dar es Salaam. The government’s decision to completely abolish all levies collected by the Higher Education Student Loan Board (HESLB) was a victory for beneficiaries, but contrary to the expectations of economists who are worried about the sustainability of the revolving system.

Since its establishment in 2004, to manage student loans, HESLB has enabled thousands of young Tanzanians to obtain loans, achieve their dreams and many contribute to the national economy, thanks to the idea of ​​the government which resulted to a cost-sharing policy.

But even so, the HESLB has faced several setbacks, including what the government says is poor loan recovery from beneficiaries.

Currently, the rate is 32% and some employers are uncooperative by not reporting their employees who have benefited from the loans, while others are not facilitating the timely payment of monthly deductions.

Such challenges which hampered the development of the education fund, they say, existed and were not caused by the presence of the levies, thus many students continued to miss higher education loans in due to lack of adequate funding.

Over the years, the number of students in need of such funding is increasing, so they (the experts) believe that removing some of the “important” tariffs such as value retention fees adds salt at the wound.

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On July 1, 2021, the Ministry of Education decided to abolish charges considered a burden on loan recipients as part of the implementation of President Samia Suluhu Hassan’s new guidelines on loans to the higher education, a few months after taking office.

As a result, the 6% value retention charge has been removed, with the HESLB Board instructed to also remove the 10% penalty charged for late servicing of loans as well as the loan administration amounting to 1% per annum.

Early on, introduction of some of the levies aimed at making the fund sustainable to enable lending to other students in need, facilitate the operational activities of the revolving system and hold debtors accountable.

The 6% LIF was charged annually against the outstanding loan balance and not against the principal loan. It was introduced in 2012/13 to, among other things, enable the government, through the HESLB, to have a sustainable fund that will allow lending to others without compromising the value of the loan money that the beneficiary owed.

The Council imposed a 10% penalty on the debt of a beneficiary who did not show up to start repaying the loan after graduation as prescribed by law, just to make the debtors responsible.

The third levy was a loan administration fee of 1% levied once a year on the beneficiary’s main loan to facilitate the board’s operational activities, including improving technology systems, finding beneficiaries, sending invoices, among other activities.

However, the three levies raised serious complaints among the recipients of increased interest on their debts, which the HESLB said was due to their (debtors) ignorance or failure to know about the various deductions, including late payment penalties.

The outcry, which also surfaced in parliament from time to time, prompted President Hassan to order the ban in order to achieve the fund’s aim of helping Tanzanian students who could not afford to make graduate studies.

The move was welcomed by a large percentage of graduates and college students who feared the growth of their debt at a time when most had no jobs or income to repay their loans two years after the graduation, parents/guardians and some legislators were also satisfied. . However, reports indicate that some graduates have managed to repay their debts on time, even with the drawdowns available.

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University of Dar es Salaam students are demonstrating to demand the immediate release of their HESLB loan money. PICTURES | CASE

HESLB sustainability issue

Even though HESLB reports that it saw a huge increase in loan repayments after the government scrapped the 6% VRF and other related charges on loan recipients who voluntarily repay their loans, analysts say the ability of the institution to continue to function well at a time when needy students continue to increase is unreliable.

“Even when we had all these levies, HESLB still faced the challenge of collecting debts to cover other needs. Today, as the burdens have been completely eliminated, the burden rests on the shoulders of the ministry which is already in dire need of resources,” says Dr. Mathew Chacha, a US-based Tanzanian economist.

Explaining the importance of the value retention fee for the sustainability of the funds, Dr Chacha says that the government may not want to benefit from the loan, but the VRF tax is important to protect the value of the money of the setbacks such as inflation.

He tells the Citizen that with the increase in the number of needy students joining tertiary institutions each year, it is clear that the government cannot cope with the number of students who will need funding in ten years or more.

“These trends had forced those in the education sector to think about ways to retain the value of higher education student loans in order to keep more of them joining higher education levels. This is what diet means even in the developed world,” he reveals.

He asks why some of the important levies like the VRF have not been reduced rather than abolished completely and instead more emphasis on the importance of the fund should be placed for the public?

“Normally human beings are made to be forced to do things, we know it’s the responsibility of anyone who gets a college loan to pay it back, but no strings attached, after a few years other challenges will arise. We call on parliament to rethink the sustainability of the education fund and help the government find other ways to protect it,” he said.

He says that normally VRF was not taxed on student loans for the council to make a massive profit. This was done to offset the costs of lending money, including inflation, and because lending money is risky.

“Obviously some people won’t repay their loans, which means lost revenue for the government, so HESLB has reduced its risk of losing money by charging VRF,” he observes.

For his part, Dr Eda Mfinanga, an economist and banking sector expert, says the government may not fail to fund students, but warns that competition in public resources will weigh heavily on the government, at a time when the education sector needs more resources.

“If a good knowledge of the loan and the beneficiary’s responsibility was provided and understood by every beneficiary, then people could repay their loans, but they could also understand the importance of maintaining value for money, even if the rate was slightly reduced,” she said. .

He goes on to say, “To lend to a person for three or four years, who will start paying back the same amount he borrowed 10 years later is a huge negative for the country. Additionally, many will not be responsible for repaying on time, which will require HESLB to use extra energy and high-level creativity or even more resources to compel debtors to comply.

She notes that, to reduce distress and default for student borrowers, removing all levies is also the wrong policy that does little for struggling borrowers while providing windfall gains for those with no harm. to repay their loans.

“A well-designed, income-based repayment plan enables borrowers to repay their loans when and if they can and is the best way to reduce defaults and distress,” she believes.

She explains that the withdrawal of the VRT from a program whose vision is to become a reliable and sustainable revolving fund for higher education was a brutal, inefficient and expensive tool to increase enrollment and reduce defaults.

“Politically motivated decisions like this should be followed by professional advice in an effort to protect an important fund like HESLB,” she notes.

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