The Stranded Academic Economy

What are we talking about?

The Stranded Academic Economy Project is an analysis of the impact that inadequate HELB funding has on the Kenyan economy. Education is vital for economic uplifting of individuals, who in turn contribute to the overall economy through taxes such PAYE, VAT, property taxes and so much more. This project focuses mainly on lost income tax contributions, although other types of tax contributions still exist.

How did it all begin?

HELB’s roots go back to 1952 when the British colonial government awarded loans under the Higher Education Loans Fund (HELF) to Kenyans studying outside East Africa, especially in Britain, USA, USSR, India and South Africa. Forty three years later, the Higher Education Loans Board (HELB) was founded in 1995 by an Act of Parliament ‘Higher Education Loans Board Act’ Cap 213A.

What does HELB do?

It is a state corporation in the Ministry of Education whose mission is to “provide sustainable finance to Kenyans pursuing Higher Education through mobilization & prudent management of resources.” Helping needy students finance their tertiary education, HELB does so through three main services: loans, scholarships and partner funds (there are 17 partner institutions and organizations as of July 2025).

Students in public universities and TVET institutions qualify for scholarships and loans while those in private universities only qualify for loans. Loans and partner funds are repaid through a check off system monthly by one’s employer, or individual payments to HELB accounts. A loan recipient has a one-year grace period before payment is due and defaulting loans results in a fine of 5,000 KES monthly.

What is the Student Centered Funding Model?

On May 3, 2025, the Student Centered Funding Model (SCFM) was introduced by President William Samoei Ruto. It was meant to address the challenges that public universities and TVET colleges were facing, especially concerning massive enrolment and inadequate funding.

Previously, the Differentiated Unit Cost (DUC) model was in use, calculating funding based on the average cost of delivering specific academic programs within each university. This model led to inconsistencies and disparities, however, resulting in a more student-centered replacement known as the Verifiable Scholarship and Loan Funding (VSLF) model. VSLF ensures students are funded based on their assessed level of need with the help of a Means Testing Instrument (MTI).

Students are grouped into five categories which determine the percentages of scholarships, loans and household contributions to the school fees: Band 1 (prev. vulnerable), Band 2 (prev. extremely needy), Band 3 (prev. needy), Band 4 (prev. less needy), and Band 5.

How is the HELB funding at the moment?

Over the last 27 years, HELB has disbursed over 130 billion Kenyan shillings to help 1.23 million students. This impressive feat comes with its challenges though. Every year, a percentage of students do not receive funding, leading to students giving up or deferring their tertiary education dreams.

HELB CEO Geoffrey Monari projects that 468,237 students will miss funding in the 2025/26 academic year, contributing to a record high funding gap of 36.1 billion. A few years ago, it was projected that the funding gap at HELB would grow from Kshs. 4.8 Billion in 2021 to Kshs. 14 Billion in 2030.

It was disappointing enough that a 192% increase in the funding gap was expected in 9 years. It is even worse, nonetheless, that the increase is predicted to be 652% in about half the time.

Why should we care from an economic standpoint?

An individual is projected to have lost a gross earning of Kshs. 43.7 million in their lifetime, if they drop out of university due to HELB not funding their studies.

If we consider everyone whose tertiary education has not been funded by HELB, the government is projected to lose a total net tax revenue of Kshs. 32 trillion.

What solutions are on the table?

HELB offering an 80 per cent penalty waiver to those who pay back their loan in a lump sum is a good start. This incentive, alongside working with KRA to track defaulters who may be financially able to pay back but willingly not doing so, is a good way to recover the loan defaults that contribute to HELB's funding gap.

The proposed 3% VAT allocation to fund higher education is also a great approach for sustainable long-term funding, as long as the VAT rate will not be increased at the cost of Kenyans to accommodate for this change.

Take a look at the full paper below