Report: How public universities sank into financial mess

Two separate, but detailed reports of Kenya's main higher education funding agencies have revealed shocking deficits that have sunk public universities into deep financial muddle.

Higher Education Loans Board (Helb) and Universities Fund (UF) in separate reports to the Presidential Working party on Education Reforms, explain how the public institutions have become a shell of themselves with some closing down and majority declared bankrupt.

In its report, Universities Fund established in 2016 to provide funds for financing universities in Kenya, revealed that by June 2022, public universities deficit stood at whooping Sh56.1 billion. Of these, are pending bills of Sh18.6 billion for pensions, another Sh13.7 billion for Pay As You Earn (PAYE) and Sh4.8 billion for suppliers.

Universities Fund data also shows that universities owe part-time lecturers Sh4.7 billion and some Sh4.1 billion owed to cooperative and sacco contributions. The institutions are also yet to pay contractors cumulative debt of Sh1.6b and some Sh1.4b in loan deductions. Another Sh139m is yet to be paid to National Social Security Fund (NSSF) and some Sh2m owed to National Hospital Insurance Fund (NHIF).

The shocking details are contained in the report prepared by UF and submitted to the education reforms task force. Charles Ringera and Geoffrey Monari are the present chief executives of Helb and UF respectively. In the report, UF explains that over the years financial deficit in universities has been steadily growing due to both internal and external factors.

"Universities have been operating with very high expense budgets against the backdrop of reducing Government capitation and internally generated funds. As at the end of June 2022, the deficit stood at 56.1b," reads report.

UF says that the deficit continues to accumulate as universities and the Government continue to carry out business as usual.

"Some of the external factors that have been identified to exacerbate the situation include the increase of student numbers not in tandem with Government capitation."

Data presented to the education reforms team shows that the mean allocation per student has not been consistent since 2017/2018 financial year. At that time, each of the 263,106 students was allocated about Sh126,615. In 2018/2019, the mean allocation per student was Sh163,560 for each of the 133,218 students.

And in 2019/2020 each of the 241,015 students received an average allocation of Sh170,861 while in 2020/2021, some Sh154,385 was allocated for each of the 271,446 students. During the 2021/2022, the mean allocation for each of the 324, 182 students was Sh135, 244 while in the 2022/2023, each of the 356, 188 students received an average of Sh123, 597. And UF says these allocations are not adequate as students' numbers have also continued to grow.

Sustainable manner

"It can be seen that the optimal mean funding that will ensure students are well funded is Sh230,000. This amount then gradually increases by Sh1,000 every financial year. Therefore, the Government should strive to ensure that it makes all attempts to reach these figures if universities are to be financed in a sustainable manner," reads UF report.

In its report, Helb also says that enrollment and growth in universities have been increasing since the establishment of the first Kenyan university, the University of Nairobi, in 1970 without commensurate funding.

"Paradoxically, the establishment of new universities has not been matched with adequate funding to support the University education system be it in Universities, TVET Institutions, or to Students," reads HELB report.

Additionally, report says that the introduction of double intake to the universities by the Kenyan Government in the year 2012 affected the financial projections of Higher education financing as it doubled the demand for loans in the year while the amounts of capitation received from the government remained unchanged over the years.

"The total enrollment in public universities has increased from 3,443 students in 1970 to the current 562,006 students in 2022," reads Helb report.

Citing the Economic Survey (2022), Helb explains that 562,006 students were enrolled in Kenya's 77 universities in 2022.

"This was an increase of 439,159 students equivalent to a growth of 457 percent from 122,847 students enrolled in 2009," reads HELB report.

Based on these factors, Helb argues that public universities are struggling with funding challenges with most of them being unable to meet their operating expenses such as salaries, and statutory deductions among other financial obligations.

"Teaching and non-teaching staff have been getting half (50 per cent) of their pay for over six consecutive months. Due to the uncertainty surrounding education funding, it's becoming increasingly complex to fund university education and sustainability concerns have been raised by various stakeholders given the current resources situation," reads Helb report.

The reports further say that Differentiated Unit Cost (DUC) rolled out in 2017/18 financial year by UF has not been adequate to get universities out of the deep financial hole. DUC is the annual cost of providing a particular degree program per student, taking into account the staff costs, facility costs, and other institutional overhead costs.

"The DUC percentage has decreased over the period from 60.7 per cent in the FY 2019/20 to 53.77 per cent in the FY 2020/21 to a meager 49.51 per cent in the FY 2021/22 because of more students enrolling in universities as a consequence of government policy mandating of 100 per cent transition of students scoring a C+ (Plus) or higher without an equivalent increase in resource allocation," reads Helb report.

The report observes that as a result, the per-student funding has been reduced with the DUC rate decreasing from 60.7 per cent to 49.51 per cent.

"The reduction in the DUC percentage over time has been the major negative impact on Higher Learning Institutions' (HLIs) financial status. This has greatly affected the operations of universities leading to deficit budgets and pending bills estimated to over Sh56.1b today. Attaining the requisite 80 per cent of DUC annually has therefore been a tall order," reads report.

As funding diminished, Helb also says that thousands of students have missed out on student loans as a result of constrained resources to meet the spiralling demand for university education loans. "The average loan granted per student has dropped in successive years to a low of Sh42,160 per year and is expected to drop further to Sh42,060 per student in 2022/2023 amidst growing concerns of high inflation and emerging issues," reads HELB report.

Yet, a study carried out by Helb in 2018 revealed that the minimum amount required to sustain a student in a university for one year is about Sh122,000.

"The allocation average of Sh42,060 per student is therefore way far below the amount required to sustain a student in the university," Helb says.

Helb argues that thousands of students continue miss out on higher education loans due to reduced allocations and notes that in the recent past, the number of applications has increased against a constrained student budget that has suffered unprecedented cuts. For instance, Helb says that for the Financial Year 2022/2023, it requested Sh27b from the Exchequer out of which only Sh5b was to be raised from loan recoveries.

"However, the allocation to Helb was reduced to Sh15.8b indicating a funding gap of about Sh11.2b," reads report.

It further says that due to this, more than 257,398 needy students missed out on Helb loan awards in the year.

"These 257,398 needy students is comprised of 128,505 university students and 128,893 from various TVET and colleges."

Helb, however, explains that the gap is wider than the 257,398 students who missed out of allocations in 2021/2022. Particularly, Helb argues that the gap may be wider under 100 per cent transition from Secondary Schools to tertiary institutions.

"The gap widens to 475,806 unfunded students for the year 2021/2022 whereby the number of candidates who sat for KCSE in year 2021 is 826,807 but the number of students funded was 351,001."

Helb observes that the funding gap continues to widen thus calling for a reformist action in tertiary education funding to promote sustainability and avert the ballooning number of needy students who are missing out on funding. But even with these, UF report finds that the resource pool for universities has been increasing steadily since the 2017/2018 Financial year.

"This growth however has not been as fast as the student numbers as the resource requirement is far above the resources available," UF said.

For instance, under the 2021/2022, the annual resource requirement was put at Sh70.8 billion targeting 324,182 students. But only Sh43.8b was allocated, leaving a deficit of Sh27b.