Student loan interest: Breaking down Kenya’s proposed 4% education debt rule

The fight over Kenya’s student loans has moved from the size of the debt to a simpler question.

Should students repay exactly what they borrowed, or repay it with interest?

That question is now before Parliament as the National Assembly considers the Tertiary Education, Placement and Funding Bill, 2026.

During public participation on Tuesday, the Muslim Education Council asked MPs to remove provisions allowing interest to be charged on education loans.

The council wants Clause 45(d), which provides for interest, deleted, alongside a provision dealing with repayment timelines.

The council insists that graduates should repay the principal amount they borrowed, with any agreed administrative charge, rather than watch the balance grow through interest.

The proposal comes as the government prepares a major restructuring of tertiary education financing.

The 4% already on HELB loans

Under the current system, undergraduate and TVET loans attract 4% annual interest on the outstanding balance, alongside a Sh1,000 annual ledger fee.

HELB has also publicly rejected reports that the rate had been raised to 12%, saying the applicable rate remains 4%.

That distinction matters because the debate over the new Bill has sometimes been presented as though a 12% student-loan rate is being introduced.

HELB says that is not the case.

The proposed legislation instead seeks to place tertiary financing under a new framework, with the Tertiary Education Funding Authority expected to replace the existing HELB, Universities Fund and TVET funding arrangements.

From scholarships to repayable funding

The bigger change is how the government intends to finance students.

The Bill proposes a system in which eligible students in public universities and TVET institutions receive funding through the new authority, with repayment becoming a central part of the arrangement.

Earlier versions of the proposal have included a system where graduates begin repayment after entering employment, with deductions capped at 25% of earnings.

That creates a different financial equation for students.

A loan that covers tuition and other approved education costs may be much larger than the typical HELB loan under the existing funding model.

Once interest is added, the amount eventually repaid can exceed the original principal.

This is why the interest provision has become one of the most contested parts of the Bill.

The debt challenge

The concern is particularly significant because student-loan repayment already presents a collection challenge.

Nation reported that HELB defaulters rose from about 256,000 in June 2025 to 380,530 five months later.

Education stakeholders are therefore asking Parliament to consider whether adding interest helps recover public money or makes repayment harder for graduates who struggle to find stable employment.

Other groups appearing before MPs have raised a different concern.

Whether the proposed funding system will have a reliable source of money to keep financing students throughout their studies.

The National Assembly is still collecting views on the education reform Bills.

The interest provision is therefore not yet a final change in law.