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Students’ Loans Act – Improved Access to Education or a Mirage?

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The Students’ Loans (Access to Higher Education) Act, 2023, gained Presidential assent on 12th June 2023 and has since been making the rounds in the media and among Nigerians. The Act repeals the Nigerian Education Bank Act, Laws of the Federation of Nigeria, 2004.

It provides the framework for equal access to interest-free loans for all students seeking to study in public institutions of higher learning in Nigeria, for the payment of tuition fees only. To secure a loan an applicant must:

  1. Have admission to a university, polytechnic, college of education or vocational school established by the Federal Government or a State Government;
  2. Have annual personal or family income of less than N500,000;
  3. Provide at least two guarantors who must be a civil servant of level 12 at least, a lawyer with at least 10 years post-call experience, a judicial officer or a justice of peace.

A student is disqualified from accessing the loan if he or she:

  1. Has defaulted in repayment of a loan from any organisation;
  2. Is found guilty of exam malpractice by any school authority;
  3. Has been convicted of a felony or offence relating to dishonesty or fraud;
  4. Has been convicted of drug offences;
  5. Has a parent who has defaulted in respect of a student loan or any other loan.

The Act establishes the Nigerian Education Loan Fund which will be responsible for managing student loans, making rules and guidelines with respect to the loan application process, reviewing loan applications, approving and disbursing same, recovering all loans, among other functions. The Fund will also monitor the academic records of loan grantees and obtain information about their graduation, national youth service and employment, to determine when repayment of each loan is due. The Fund will work with employers to ensure that the loan sum is deducted from the salaries of the grantees.

The Fund will be administered by the Central Bank of Nigeria through Nigerian money deposit banks. The CBN Governor is responsible for setting up and chairing a Special Committee which will perform the functions of the Fund. The CBN Governor is also empowered to appoint a Secretary for the Committee. The Committee comprises several stakeholders from the education sector, the Finance Minister, Auditor General for the Federation and representatives from the  Nigeria Labour Congress (NLC) and the Nigerian Bar Association (NBA).

Nigerian Education Loan Fund will be financed through education bonds, education endowment fund schemes, 1% of taxes, dues and levies accruing to the Federal Inland Revenue Service (FIRS), the Nigeria Immigration Service and the Nigeria Customs Service; 1% of  profits from oil and other materials; gifts, donations and grants.

An application for student loan is to be submitted through the applicant’s bank to the Chairman of the Special Committee (for the Nigeria Education Loan Fund), that is the CBN Governor. The application must be accompanied by a letter signed by the Vice Chancellor or Rector or the head of the applicant’s educational institution, as well as the Student Affairs Officer of the institution. The application must also be accompanied by a copy of the student’s admission letter, a letter from their guarantors recommending the applicant for the loan and accepting liability in the event of a default in the repayment of the loan. In addition, the application will also contain the particulars of a guarantor’s business registration with the Corporate Affairs Commission (CAC) or documentation from an appropriate authority and details of the guarantor’s bankers.

It is important to note that disbursement of funds where a loan is approved is subject to availability of funds.

According to the Act, repayment of the loan will commence two years after the beneficiary has completed the National Youth Service Corps (NYSC) programme. Ten per cent (10%) of the beneficiary’s salary will be deducted at source by his or her employer, who will credit the Fund with these deductions. A beneficiary of a student loan is also required to communicate any change of job (with details of the new job) to the Chairman of the Committee within 30 days of resuming with a new employer.

Where the beneficiary is self-employed, he or she is expected to remit 10% of his or her total profit on a monthly basis, to the Fund. A self-employed beneficiary must submit information relating to his or her business, including registration documents (if registered), details of bankers, partners, directors and shareholders, to the Committee within 60 days of assuming that status. It is an offence for a self-employed beneficiary or another person to withhold information of such a beneficiary as it relates to his or her business and this offence is punishable by a fine of N500,000 or imprisonment for two years or both.

The Act makes other provisions for the operations and internal affairs of the Special Committee established by it.

The provision of interest-free student loans to improve access to tertiary education is a laudable initiative. However, the conditions for obtaining student loans need to be realistic, to ensure that these loans are actually obtained by the target beneficiaries. The requirement for two guarantors who will become liable in the event of a loan default does not appear practical, as people would be reluctant to serve as guarantors for applicants, thereby making it difficult for applicants to fulfill the conditions for accessing these loans. In terms of systems and processes, a credible identity database is necessary for loan operations, to effectively track loan recipients and ensure repayment of loans. Improving the integrity of Nigeria’s national identity system, as well as improved synergy between government institutions using a unified database will be instrumental to following up on loan repayment, as opposed to transferring the burden to guarantors in the event of a default.

It would appear also, that the threshold of qualification to access the loan means that several other needy students are excluded. A maximum income cut-off of N500,000 per annum really means that the several millions of poor families that fall outside of this threshold will not benefit.

It is also important to point out that there is no amount stated as payable as tuition under this law. It appears that this may have a positive effect as it would enable adjustment in line with possible future increases in tuition fees.

The assumption that a Nigerian graduate would have secured a job within two years of completing the NYSC programme is questionable. The unemployment rate in Nigeria is staggering and has been estimated by experts to be as high as 40.6% in 2023. There may be a need to provide variable timelines, so that if the circumstance of a beneficiary makes it difficult for him or her to pay, the timeline can be adjusted to take this into account.

Another observation is that the Act does not explicitly state the frequency of the 10% deduction of an employed loan beneficiary’s salary for the repayment of the loan, although it may be assumed that it should be monthly, as stipulated in the case of a self-employed beneficiary.

It is also unclear why the management of the Fund is domiciled with the Central Bank, as it is not part of its core responsibilities of nor is there any justification made for this.

Read Act here