By Marvis Oduogu, Esq
INTRODUCTION
The Student Loan (Access to Higher Education) Act 2023 (‘the Act’), passed into law on 12th June 2023 by the President of the Federal Republic of Nigeria, Bola Ahmed Tinubu was one of the four laws assented to by the President within two weeks upon his assumption of office.
The Act, which repeals the Nigerian Education Bank Act Cap. N104, Laws of the Federation of Nigeria, 2004, aims at alleviating financial constraints that prevent many students from pursuing higher education, through the provision of an interest-free loan to those who qualify from the Nigerian Education Bank (“the Bank”) which is established under the Act to manage, disburse, coordinate, and supervise the student loan. These Students must have secured admission into any public Nigerian University, Polytechnic, College of Education, or any Technical and Vocational Education and Training (TVET) School.
Undoubtedly, the legislation is commendable given its potential to make considerable positive impact on Nigeria’s educational system. This piece will take a closer look at the provisions of the Act to x-ray its enforceability.
Overview of the Act and the Nigerian Education Bank.
The Act provides for interest-free loans to indigent Nigerian students. It is also made available to all students seeking higher education in any public institution in Nigeria, provided they meet the criteria for qualification. The loan is only for the payment of tuition fees, and does not cover other expenses such as accommodation, pocket money, project execution fees etc.
Furthermore, the Act established the Nigerian Education Bank to fund and disburse the loan as well as implement, supervise and monitor the purpose of the Act. The Bank will be funded from education bonds, and interests arising from deposits in bank and education endowment fund schemes. Also, 1% of taxes, levies and duties to the Federal Government through the Federal Inland Revenue Service (FIRS), Nigeria Immigration Service (NIS) and Nigerian Customs will go to the Bank. It will also be funded by 1% of profits from oil and other natural resources, as well as grants, gifts and any other endowments.
The Nigerian Education Bank will have a Governing Board chaired by a retired Vice Chancellor of any Nigerian University and comprising of representatives from various organizations, including the Academic Staff Union of Universities, Vice Chancellors Forum, Rectors Forum, Nigerian Labour Congress, Nigerian Bar Association, the Minister of Education, Auditor-General of the Federation, the Minister of Finance or their Representative, and the Chairman of Nigerian Universities Commission (NUC), among others.
The President, subject to the approval of the National Assembly, selects members for the Governing Board. Members must have high integrity and serve for four years, with the option of one re-nomination. A member can be removed from their position due to specific reasons. If a member leaves their position, someone else shall be appointed to fill the vacancy. The President can remove members, while the Chairman requires National Assembly confirmation for removal.
The Board will oversee the Bank, which will be managed and administered by different stakeholders, including the Central Bank of Nigeria and commercial banks. The Bank will have mechanisms in place to monitor academic performance, ensure timely loan repayment, and prevent fraudulent practices.
Thirdly, with regards to eligibility, applicants must have secured admission into any tertiary institution, either belonging to the Federal Government or state governments including universities, polytechnics, colleges of education and vocational schools. The student must also come from a family with an annual income of less than N500,000($1,000) and provide at least two guarantors, who must either be civil servants above Level 12 or a lawyer with at least 10 years post-call experience, or a judicial officer or a justice of peace.
In addition, applications for the loan are to be made through the Students Affairs Offices of the respective institutions, to be forwarded to the Chairman of the Education Bank in their territories. These applications will thereafter be forwarded to the Minister of Education for approval within 30 days of submission and disbursement made immediately after the Minister’s approval.
Notably, students are disqualified from applying if they have defaulted on any loan before; have proven cases of examination malpractice; have been convicted for any offence of dishonesty or fraud; have been convicted for drug abuse; or their parents have any history of previous default on any loan.
Moreover, beneficiaries are expected to start paying back two years after their compulsory National Youth Service, and repayments of the loan will be 10% direct deductions from their salary accounts by their employer. And if they are Self-employed, they will remit 10% of their monthly profit as repayment of the loan as they are expected to document all relevant information, their incomes, for deductions within 60 days upon becoming self-employed.
Examining the Advantages and Limitations of the Act vis-à-vis its Implementation and Enforcement
While the Act is a positive step towards addressing the issue of access to tertiary education, which may eliminate the excuse of “I don’t have money to sponsor myself” amongst indigent students, create access to a no-interest loan scheme and help in the poor funding of higher institutions, the implementation of the provisions of the Act is bedeviled by several shortcomings that might limit its effectiveness.
These shortcomings include:
1.) Limited Coverage of the Loan: the loan only covers tuition fees and does not cater for other expenses (e.g. accommodation and living expenses). Tuition fees constitute not more than 5% to 10% of the students’ actual needs to obtain tertiary education. The economic state and reality in Nigeria leave much to be desired of the far-reaching effect of the Act on its beneficiaries. This loan is far-less economically realistic when compared with similar Loans provided in other civil jurisdictions such as the United States of America (USA) and the United Kingdom (UK), where student loans cover not only tuition fees but also living, accommodation expenses and the others. In India for instance, there are loan terms with incentives specifically designed for female students to encourage them to pursue higher education.
2.) Porous Loan Repayment Process: Unlike the Yakubu Gowon’s Federal Student Loans of 1972 with maximum repayment period of 20 years, the Student Loan Act only mandates a fixed (10%) salary deduction for loan repayment. This provision simply does not consider the duration for repayment (it does not account for the time it takes to repay the loan). This could potentially lead to accumulation of Student loan debt. Although, Nigeria’s student loans do not accumulate compound interest which reduces the risk of unmanageable debt, and the Education Bank has a diversified source of income, caution is advised to prevent overwhelming debt and burden on the Government which could lead to the demise of the Student Loan Act.
3.) Inflexible Repayment Option: The Act does not provide enough flexibility for borrowers to choose a repayment plan that suits their individual financial circumstances. Also, it is unclear as to whether an unemployed graduate after 2 years of National Youth Service would be considered a defaulter as the Act does not address the situation where graduates do not secure employment after 2 years of graduation. While, we believe that the framers of the Act may be implying that a beneficiary should start a business/become self-employed since this is the other means of repayment the Act envisages (remittance of 10% of monthly profit if they beneficiaries are self-employed), there is nothing mentioned under the Act as to how a graduate beneficiary who is neither employed nor self-employed after 2 years of National Youth Service would repay the loan.
4.) Ineffective Mechanism for Punishment of Offenders/Defaulters: Contrary to the popular report which suggests that the Act imposes a penalty of ₦500,000, two years imprisonment, or both for defaulting on the Loan. It is noteworthy to state that this penalty is not explicitly stated to apply to default in repayment generally. Instead, the penalty of ₦500,000, two years imprisonment, or both according to section 18(6) of the Act applies only to self-employed graduates (beneficiaries) who fail to provide relevant information about their business two years after completion of their NYSC or anyone who enables this failure.
Notwithstanding the provision of the Act empowering the Loan Disbursing Committee to exercise all legal rights towards recovering loans disbursed, we opine that the lack of clear penalty for defaulting in repaying the student loan could lead to misinterpretation/application of section 18(6) and as a result potentially undermine enforceability of the provisions of the Act. Without a clear penalty, beneficiaries may feel less compelled to repay the loan.
5.) Stringent Eligibility Criteria: Concerns have been raised on the strict eligibility criteria for accessing loan under the Act especially as to the requirement of a guarantor of not less than Grade Level 12 and that of a Legal Practitioner of not less than 10 years post call. The Act, being an education-oriented one, it is expected that Principals and educationists of senior cadre (at least not less than 10 years in service) would have been made eligible to serve as guarantors also since they know their students better can identify those who truly need the loan. Also, senior members of other professions like medical science and others ought to be eligible as guarantors too.
Additionally, the Act specifies that only students whose parents do not earn beyond N500,000 (Five Hundred Thousand Naira) annually will be eligible. This excludes families with both parents receiving more than N41,600 monthly but are unable to cater for the Applicant’s tuition in the Higher institution, thus limiting access for deserving students who do not meet these criteria.
The economic reality in Nigeria is that an N100,000 monthly income can barely sustain a family of 4 children, for instance, imagine a family of 4 children, where both parents combined monthly income is ₦100,000, how exactly will they afford the tuition fees for their children, especially where it is anticipated that this Act will lead to increase in tuition fee? Thus, it is suggested that there is need for an onward review of the N500,000 (Five Hundred Thousand Naira) benchmark annual income to meet up with economic realities.
6.) Restrictive and Discriminatory: The Act also fails to acknowledge private institutions, thus making it seem discriminatory in nature. Although the reasons for this might not be far-fetched given the popular notion that students who attend private schools are already privileged and come from wealthy families, second could also be that the government might want to prioritize funding for public institutions which serves a larger population, or another reason is that private institution fees are higher which may be difficult for students to repay in the long run.
However, all these reasons are still not sufficient to exclude private schools as some of their students may still have some financial needs and require assistance to pay their fees. In fact, international countries for example, United States, Canada, Australia to mention a few include private institutions in their student loan programs.
Other shortcomings noted in the Act include: the President’s power to appoint and remove members of the Governing Board absolutely without recommendations or approval from another arm of Government, and denying students eligibility for loans based on their parents’ default on a loan scheme.
Recommended Measures to Enhance Effectiveness
To improve the effectiveness of the Student Loan Act, several measures can be implemented. Firstly, president’s power to appoint and remove members of the Governing Board should be subject to approval from another arm of Government, rather than the President’s sole discretion. Also, the power to dismiss a board member should follow same procedure used for removing the Board Chairman rather than being absolute.
Secondly, it was also suggested that the Government could also leverage technology to enforce loan repayment such as the CBN’s Global Standing instruction (GSI) policy which allows lenders to automatically debit the accounts of loan defaulters linked to their BVN.
This technology was said to be made possible by advancements in Nigeria’s payments space and enables banks to recover loans through the accounts of borrowers held with other Bank institutions. This technology can be used to enforce the new student loan Act and ensure that borrowers repay their loans. It was also added that despite advancements in technology, the fund will still have to tackle two things, which are possible backdoor tactics by government and bank officials and Nigeria’s poor identity and addressing system.
Furthermore, the Act may need amendment considering the recent initiatives of the Federal Government to unify the administration, and collection of taxes, levies and rates in one body, the FIRS. The amendment will also be to provide more comprehensive coverage of the loan to other expenses such as accommodation, living expenses, project execution fees etc. and possibly offer incentives for certain groups of students. Also, repayment options should be revised to consider the maximum duration for repayment and provide more flexibility for borrowers to access. The Loan should also be made more inclusive regarding private institutions benefiting from it.
Likewise, we mentioned earlier that the Act does not address the situation of Nigerians who are unable to secure employment two years after the completion of their National Youth Service, it is important to address this situation.
CONCLUSION
The Act aimed at improving access to tertiary education in Nigeria is undoubtedly a positive step, but it has some limitations that might undermine its effectiveness. The Government should consider recommendations from various stakeholders. Neglecting to address these limitations could lead to unexpected consequences, as seen in the 1978 Ali Must Go protest, which resulted from the Government’s push for a “cost-reflective tuition” policy that rendered the previously introduced Federal Student Loans Decree ineffective. Therefore, it is crucial to address the limitations of the Act to avoid a similar fate.
As expected, there will be a rise in tuition fees. However, if resources are used wisely and necessary adjustments are made, we believe that this measure will be beneficial to majority of Nigerians.
ODUOGU, Esq is the Team Lead for the Taxation, Immigration, Labour and Employment Practice Group in the Law Firm of Stren & Blan Partners. He can be reached via his email: marvisoduogu@strenandblan.com or his contact number: +2348064082698
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