Why Are Student Loan Defaults Surging Despite HELB’s Warnings?

HELB LOAN Defaults

Kenya is facing a growing student loan crisis, with more than 380,530 graduates defaulting on HELB obligations, a 40% jump from earlier reports. The total unpaid debt has reached Sh42 billion, threatening the sustainability of higher education funding. According to the Kenya National Bureau of Statistics (KNBS), youth unemployment is a key driver of this trend.

HELB, designed to provide access to tertiary education through a revolving fund model, relies on repayments from graduates to fund new students. Yet, outside of teachers—who are the most consistent borrowers—the repayment landscape is bleak. This raises questions about the long-term viability of HELB’s model and its impact on future students.

To combat defaults, HELB has listed over 124,000 defaulters with the Credit Reference Bureau (CRB), with 83,000 of them having made no payments for over a decade. This restricts access to loans for homes, businesses, or further education, placing lifelong financial burdens on many young professionals.

HELB officials note that teachers remain the most reliable borrowers, highlighting the role of stable employment and structured salary deductions in repayment compliance. Outside this group, repayment is inconsistent, reflecting broader socioeconomic challenges affecting Kenyan graduates.

“This is not just a numbers problem; it’s a human and economic one,” a HELB spokesperson explained. “Every unpaid loan reduces the fund available for new students and undermines the sustainability of higher education financing.” IMF reports have also highlighted the economic impact of rising youth debt globally.

The surge in defaults is driven by multiple factors. Many graduates face employment uncertainty or underemployment, making repayment challenging. According to a 2024 KNBS report, nearly 40% of graduates are either unemployed or working in informal, low-paying jobs within five years of graduation.

Financial literacy gaps also exacerbate the crisis. Many students enter the workforce without understanding interest accrual, repayment obligations, or long-term consequences of default. Economists warn that without interventions such as flexible repayment and targeted support, defaults are likely to persist.

HELB’s revolving fund model suffers when defaults rise, shrinking the availability of loans for new students. This perpetuates a vicious cycle: fewer students can access higher education, and graduates face limited opportunities to earn, worsening the repayment problem. Reuters analysis indicates this pattern is common in developing economies with high youth unemployment.

Socially, defaulting graduates face stigma, restricted access to loans, and anxiety over debt. Affected individuals often struggle to start businesses, buy homes, or access further credit. One young entrepreneur shared, “I wanted to start a small agro-business, but my CRB listing blocked me from opening a bank loan.”

“This is not just a numbers problem; it’s a human and economic one. Every unpaid loan reduces the fund available for new students.”

Systemic issues within HELB include reactive collection methods and reliance on CRB listings rather than proactive support. Economists suggest income-linked repayment plans could relieve pressure on low-income borrowers while preserving fund recovery.

Historical trends reveal that rising defaults are not new but have intensified over the past two decades due to increased university enrolments, youth unemployment, inflation, and high living costs. Long-term non-repayment signals systemic failures in financial education and borrower follow-up.

Policy discussions emphasize the need for multi-pronged strategies: flexible repayment plans, incentives for timely payment, financial literacy programs, and support for informal sector borrowers. Critics also highlight that broader economic reforms—job creation, wage growth, and youth entrepreneurship—are necessary to tackle underlying default drivers.

Teachers’ consistency in repayment underscores the importance of secure, predictable income. Policymakers are exploring automatic deductions for formal sector employees, though this excludes a growing segment of informal workers. EACC reports show enforcement alone is insufficient without structural economic support.

Rising defaults demand urgent reflection: can Kenya maintain a sustainable education financing system that balances access, repayment, and economic realities? Without intervention, graduates risk lifelong debt, limiting personal, entrepreneurial, and economic potential. Internal reforms and strategic policy adjustments are critical.

For borrowers, long-term financial planning and timely repayment are essential. For HELB and policymakers, the challenge is to ensure loans remain a tool for opportunity rather than a trap. Kenya Shilling economic insights further emphasize the importance of economic stability in supporting repayment capacity.

This article was prepared by the Ramsey Focus Analysis Desk, based on verified reports, independent analysis, and insights to ensure balanced coverage.