NELFUND risks collapse without recovery reforms – Experts

The Nigerian Education Loan Fund (NELFUND) may face difficulties in maintaining its student loan program unless the Federal Government swiftly implements a reliable system for loan recovery, warn education and finance experts. This warning was shared during a webinar titled "Can NELFUND Sustain Itself? Financing Nigeria’s Student Loan Scheme" which was organized by iRead To Live Initiative in collaboration with BudgIT Foundation.

The concern arose due to the significant disbursement of approximately N372.62 billion to thousands of students across 319 institutions over the past two years since the scheme's initiation. Repayments under the scheme are anticipated to commence around 2028.

The warning stems from the failure of previous Nigerian student loan schemes, which were launched in 1972, 1988, and 1993, primarily due to a lack of adequate recovery mechanisms. These earlier schemes collapsed because loans were handed out without proper provisions for repayment. As per the policy brief unveiled at the webinar, NELFUND's substantial release of funds cannot be considered a guarantee of the scheme's sustainability.

The fund has yet to experience a recovery failure, as no cohort of borrowers has reached the repayment stage.

The report emphasized that the upcoming period, before the first repayment is due, presents an opportunity for the government to rectify any weaknesses in the scheme. However, the brief noted that NELFUND is entering a critical phase similar to the initial stages of past student loan schemes, characterized by large disbursements, untested recovery mechanisms, and funding structures that have yet to demonstrate long-term stability.

The statutory power of NELFUND to recover loans through legal means might have limited effectiveness if borrowers cannot be located or their incomes traced. The report highlighted that under the Students Loans (Access to Higher Education) Act, 2024, repayment is limited to a maximum of 10 percent of a beneficiary’s gross monthly income, with enforcement not commencing until two years after completing National Youth Service Corps.

One of the main challenges lies in Nigeria's predominantly informal economy, with 93 percent of employment being informal. This makes it difficult for NELFUND to recover loans through employer deductions. The policy brief recommended that NELFUND integrate with the Nigeria Revenue Service income data to identify and track self-employed beneficiaries, thereby strengthening its recovery system.

Regarding funding, the report expressed concerns about NELFUND's reliance on ad hoc transfers, including recovered proceeds of crime and executive directives. This reliance raises questions about the Fund's sustainability of its financing base. It suggested that the government clarify the distribution formula for the Development Levy and safeguard NELFUND's core financing from political influence.