Tough choices over student loans

By Stephen Kafeero & Ivan Rugambwa

Planned loan scheme could throw students into the debt pool without a clear payment plan

Tonny Nalima completed his Senior Six and hopes to join university for a degree in Petroleum Engineering. When we met the university admission lists were not yet out but he was already anxious.

“My mother doesn’t have enough resources to push me through University and also send my siblings to school,” he says.

Nalima who has never taken a loan from a financial institution was pinning his hopes on the proposed Education Loan Scheme for University Level Students and knew the odds were tight.

He knew the government is pumping Shs5 billion into the loan scheme but there were 1000 students hoping to benefit.  They were from 26 programmes in 5 public universities and 7 private chartered universities and Nalima did not know how the loans would be awarded.

Would it be per university or per programme? Would it be a question of exam grades, genuine need, or merely the applicant’s perceived ability to repay the loan?

Successful implementation of the loan scheme would be a relief for many like Nalima because funding of university education is so multilayered that a student’s fate is sometimes determined by how their fees are paid.

There is the government-sponsored student; meaning one whose education is fully-funded by the state and the State-House Scholar whose fees are paid directly by President Yoweri Museveni’s office. These usually have no difficulty completing their course.

Then there are the private-sponsorship students. Originally, these were working-class types sponsored by their workplaces. Increasingly, however, many of them are either paying their way, or getting help from their parents or other donors. Statistics at the university show that many of them fail to complete their course over tuition fees issues.

Now, if things go as planned, university education in Uganda could get any entrant; the `loan schemer’ or a tag close to that. The fate of this group is unclear.

First year university admissions usually get underway in August, but this year they have been rocked by the closure of Uganda’s biggest and oldest university, Makerere, in Kampala and uncertainty hangs over how the loan scheme will operate.

Four men; members of the Higher Education Student’s Loan Taskforce, could by May be found hunched over computers at their offices on IPS building on Parliament Avenue in Kampala, trying to figure out how to implement the loan scheme.

Michael Wanyama, the coordinator for the secretariat, Timothy Ojala; the legal officer, Samson Wanangwe; IT system analyst, and Peace Bategeka; the administrator, and others, had been looking at numerous student loan scenarios since May 2011 when their body was set up. They have been testing public opinion with various positions but, unfortunately, they have balked whenever the debate got too hot.

As a result, the legal, financial and institutional framework of the scheme, which they should have had ready by the start of the 2011/2012 fiscal year, is not ready.

They urgently drafted the Student Loan Scheme Bill but that too has stalled. When the current wave of energy around the scheme started in May and journalists contacted the Minister of Education, Maj. Jessica Alupo; she said it was before cabinet and would soon move to parliament. It has not gone to parliament.

Isa Matovu, the executive secretary of the Uganda Muslim Teachers Association (UMEA) supports the loan scheme but is unimpressed by how it is being implemented, especially the aspect of allocating money before putting policy guidelines in place.

“Money should have been the last thing after instituting a board and specifically streamlining the beneficiaries,” he says.

Prof. Abdu Kasozi, one of the top brains in Uganda on this subject, appears to disagree. In a recent newspaper article he advised the implementers to benchmark their neighbours.

“All countries that surround Uganda have put student loan schemes in place on the premise that you learn to swim by leaping into the pool,” he said.

Prof. Kasozi is a renowned expert on higher education management but the implementers of Loan Scheme appear to have missed his advice. With the new university admissions underway, instead of jumping in, the loan scheme implementers appear to have once again hesitated.

The question now is, if neighbours Kenya, Rwanda, and Tanzania already have student loan schemes, why is its introduction in Uganda being greeted with so much skepticism?

High demand

Interviews The Independent has done show that it has to do with the timing, history of such government schemes, their planning and implementation.

For some curious reason this year, the government appeared determined to hurriedly roll out the scheme. Almost immediately, the process became a fumble with the government appearing to make up the plot on the go in reaction to public sentiment.

Initially, the minister of Education said the loans would only be for science students who are usually a small number. In her budget speech, Minister of Finance Maria Kiwanuka was even more precise; naming science, medical and engineering as the beneficiaries.

However, when the loan scheme information paper was released, engineering students had also been left out. Then, following widespread condemnation, the scheme was opened to all students. The trouble was the budget has not changed. So how was the little money meant for a few students going to pay for the new big numbers?

When The Independent visited the Taskforce office, the members were reluctant to explain their plan. Some of them conceded, however, that they were aware the project they are working on is “sensitive” and is a “matter with a lot of public interest”.

Nalima is among those watching closely. If he is lucky, he will get a Shs5 million loan; exactly enough for his tuition and depending on which university he ends up in, his course related expenses.

The loans are designed to cover only tuition fees but a study by Makerere University shows that a student at Uganda Martyrs University Nkozi needs Shs2.6 million per year for accommodation, food, and guild expenses; which is the higher end and Shs933, 000 for the same items at Makerere which is the lowest.

Demand for the loans is high. Statistics show that although 60,000 students qualify for university education every year, the government only sponsors 4,000 students. The rest either drop-out or seek private sponsorship.

At Makerere, the University Public Relations Officer, Ritah Namisango, says about 22,050 students are admitted each year. Of these only 2,050 are catered for by the government. The student loan scheme needs to be available for all of them or else it will be difficult to decide who gets and who does not.

“The whole system may be compromised and money may land in the hands of the people who are not supposed to benefit from the scheme,” says Denis, a student of Information Technology at Makerere University Kampala.

Denis is talking of the so-called phenomenon of `ghosts’ whereby phantom characters show up on payroll, and loan and other beneficiary lists.

Under the plan, an eligible student shall present necessary documentation to the board for the loan basing on admission to an institution of higher education. Each student will then get a loan identification number and loan card for easy tracking.

Uganda does not have a National ID and designing the necessary database requires proper identification.

`Ghosts’ have showed up in the past with money government set aside to assist vulnerable groups. Often cited are the State House Scholarship Fund, the National Youth Fund, the Market Vendors Fund, and the Prosperity for All Fund, and the Entandikwa poverty Alleviation Fund. In all cases, the money has gone to undeserving people while the poor gnashed.

Usually, the schemes have also floundered because they are considered a campaign gimmick targeted at winning election votes. Although the Student Loan Scheme has been in the works for over 20 years and is being implemented way before campaigns for the 2016 general elections start, it has already picked up the campaign tone.

Part of the reason is the hurried, unclear roll-out. The other is the unclear mode of payment.

Already, however, Makerere University has been closed indefinitely over a lecturers strike. They want a 100% pay rise, they will not get. But whatever they get and the university re-opens, we could possibly see a repeat of a now familiar cycle with the students striking over something.

This year, it could be private students striking over the university’s plan to increase the rates for accommodation and meal fees for those who reside in university halls of residence. Under the new plan, all students will also be required to present proof of payment of all functional fees and 60% of the Tuition fees at the start of semester. Fresh students have to do that before receiving their admission letters.

These decisions were arrived at during a May 16 meeting of the University Council and all students that do not comply will not be allowed to take their full course load and will not be allowed into halls of residence.

The university managers say they are also planning to hike fees. At current rates, Makerere University charges an average Shs933, 000 per year for meals, accommodation, and other course related costs. Other universities charge between Shs2.5 million for the same items at Nkozi, Shs2.1 million at Mbarara, and Shs1.7 at Mukono.

Makerere University charges Shs2000 per student per day for breakfast, lunch and supper or Shs240, 000 per student per semester. The university management says this is no longer enough with the ever increasing food prices. They say by 2012, each student required Shs3, 938, which is a 100% rise.

If the recommended new rates are passed by the University Council, they could create a spiral as other universities hike their fees even further. In the end, the Shs5 million loan that the government is providing will prove terribly inadequate.

It is considerations such as this that have ensured that Makerere is a late comer in implementing the strict fees payment terms.  Students have rioted whenever it has tried to introduce them in the past. The students do not have money.

Most are working to earn their tuition and prefer to use the semester period to gather the fees and pay at the end during exams. Some who fail to pay attend course but end up not sitting exams. That is partly why the government is introducing the loan scheme.

Counting on luck

If he is lucky and gets the loan, for his four-year engineering course, Nalima will need Shs20 million at current rates and without interest. Upon graduating, when loan repayment and evaluation of his investment kicks-in, he could be earning about Shs500, 000 in salary per month. That is if he is lucky to have a job.

According to the loan repayment terms, his employers will be required to submit 30% or Shs150, 000 of his salary to repay the loan. At that rate, he will require up to 11 years to repay the loan principal minus interest.

But so many things could change for better or worse. Nalima might not get a job. His salary could be higher? He could go into private practice and prosper or fail. So should he take the loan or not?

In countries where the student loan scheme has been implemented, there has been rising level of unsustainable debt among beneficiaries. For example in the United States the student loan debt stands at over US$1.1trillion while in neighboring Rwanda it is Rwf 70 billion.

Uganda does not have a National ID and cannot also employ the mortgage type loan scheme where the repayment is made over a specific period usually with fixed monthly or quarterly equal payments because designing the necessary database requires proper identification.

The government, therefore, seems to have adopted the Income Contingent repayment model where loans are repaid as a proportion of the graduate’s income in each year like it happens in England, Ethiopia, New Zealand, Sweden and South Africa.  This system has lower default levels but depends highly on graduates having paid jobs.

But the African Development Indicators (ADI) report 2008/09 put the unemployment rate among the youth in Uganda aged between 15 and 24 years at 83%.

Implementation of the scheme is also likely to be expensive because of the lack of necessary financial knowledge and infrastructure. Less than 15% of Ugandans have a bank account and fewer still have ever got a bank loan.

Some of the countries that have student loan schemes have relatively high levels of built-in subsidies. This is the case in Mauritius and South Africa. The subsidies ensure that loans are affordable which leads to loan efficiency; the relative difference between the repayment and the recovery ratios.

Most of the poorer countries like Uganda cannot afford the subsidies. As a result, the loans are more expensive, and default rates are higher.

A 2008 study on student loans recovery recommended measures like use of loan guarantors, moral suasion, averting access to further credit if in default and legal action against defaulters who refuse to pay.

But the government has rejected the requirement for guarantors from the loan scheme as it was generally unpopular and led to failure of the Youth Entrepreneurship Fund.

Time is running out if the loan scheme is to be implemented this financial year. The academic year of most institutions of higher learning starts in August and most of them demand payment before students enroll. Urgent action is, therefore, needed now.