Half of former university students who graduated over the past five years have defaulted on their Higher Education Loans Board (Helb) debts, reflecting the impact of the growing youth unemployment in Kenya.
Data from the Auditor-General shows that 281,459 former students who graduated after 2000 have defaulted on Sh39.63 billion or 44 percent of Helb’s Sh89.9 billion bad student loans.
The inability to recover the billions lent to the former students has weakened Helb’s ability to support university freshmen and continuing students, prompting the agency to cut students’ loan allocation.
This emerges in a period when corporate Kenya has struggled to create quality employment for thousands of graduates leaving universities and colleges annually.
The economy created 75,000 formal jobs in 2024, compared to 122,900 a year earlier, with the drop another low since the Covid-19 economic hardships, when 185,800 jobs were lost in 2020. Ninety percent of the 782,300 new jobs were in the informal sector.
Helb has found it increasingly difficult to track and recover outstanding student loans from graduates eking out a living in the informal sector, consultancy and self-employment.
This underlines the difficulty in securing work for the thousands of university graduates joining the job market annually.
About 191,766 former students who graduated between 2015 and 2020 have defaulted on student loans worth Sh33.43 billion.
This makes the decade to 2025 the worst for Helb loan recoveries and job seekers, with 88 percent of the students’ loan defaulters or 473,125 debtors.
The Auditor-General’s report on Helb said a review of documents and interviews with the fund’s management revealed critical challenges facing the revolving fund model, including the job crisis.
‘Loan repayment burden due to high unemployment and underemployment rates makes it challenging for graduates to repay their loans, increasing default rates and threatening the sustainability of the revolving fund,’ said the audit.
Helb is still owed Sh2.39 billion by former students who graduated over 30 years ago.
The majority of the defaulters have been reported to credit reference bureaus (CRBs) for delayed or late payments.
Low credit scores can prevent people from tapping fresh loans and push them into pricier, riskier debt for cars, emergency cash and other everyday needs.
Helb is modelled as a revolving fund where beneficiaries of its loans pay back to support a fresh group of students.
However, this has not been seamless as the growing number of loan defaulters has weakened the agency’s ability to support the university and college students.
More than 163,000 students in public universities and technical and vocational education training (TVET) colleges were locked out of State loans in the financial year ending June 2025 after the Helb ran out of cash, setting them up for challenges arising from alternative funds for tuition, accommodation and upkeep.
The increased enrolment in higher education institutions has raised pressure on Helb’s funding, which has not kept pace with the growing number of candidates making the minimum university admission grade of C+ and above.
The majority of those who apply for Helb loans come from low-income households and rely on the financial support to cover tuition, accommodation and upkeep.
‘In the circumstances, the high default rate may affect the sustainability of the students’ loans fund which may in turn limit loans availability to students in the future,’ warns the Auditor-General.
Data from the Commission for University Education shows 123,928 students graduated from universities in 2024, up from 99,829 a year earlier, way above the number of formal jobs that were created.
Informal employment
The number of job seekers surges when graduates from technical and vocational education and training (TVET) institutions are taken into account.
The shift towards informal employment complicates loan recovery efforts for Helb, which mainly relies on employer-based deductions to enforce repayments.
The check-off system works well in the formal sector where employers face penalties for not deducting Helb loans.
However, in informal employment, repayment depends on the goodwill of borrowers.
Helb reckons that as it expands its lending base, the risk of default becomes ‘more pronounced,’ especially among self-sponsored and informal-sector borrowers.
Helb loan repayment begins one year after completion of studies. The loan is repayable over a maximum of 10 years at an annual interest rate of four percent.
Beneficiaries are penalised up to Sh5,000 for each month that the loan remains unpaid after falling due and referred to the credit reference bureaus (CRBs).
Hardcore defaulters
The board said last year 83,571 hardcore defaulters were referred to the CRBs and are also being pursued by debt collectors. Helb says it closed June 2025 with a repayment rate of 68.6 percent, leaving it with a non-performing loans rate of 31.4 percent-more than twice the 15.4 percent default rate in Kenya’s banking industry at the end of March this year.
The performance has left Helb heavily dependent on the government.
Out of Sh40 billion revenue in the review period, Sh31.58 billion came from the Exchequer as Sh5.22 billion was received from loan recoveries and Sh605.5 million from external mobilisation.
‘Maintaining healthy liquidity levels is essential for the uninterrupted delivery of Helb’s mandate. In the context of constrained Exchequer support due to growing funding demands, liquidity risk is now a top-tier concern,’ said the board.
Helb said matured loans due for recovery stood at Sh110.62 billion from 993,888 beneficiaries at the end of June 2025. Loans yet to mature were Sh73.48 billion in the hands of 769,303 loanees, while cleared accounts were Sh31.43 billion from 253,743 loanees.
Recoveries during the year were Sh5.2 billion.
‘The financial year 2024/2025 operations were impacted by economic shocks such as inflation, high unemployment etc. [which] undermined recovery,’ said Helb.