Policy considerations for students’ loan adoption

Policy considerations for students’ loan adoption

Investment in higher education forms a critical aspect of improving the human capital of nations. In the absence of a conscious investment effort, a national skill deficiency ensues; and there is also an attendant low quality of human capital which undermines development and standards of living. Against this backdrop, it has become a constitutional mandate for governments to develop their people through education at all levels.

Due to limited resources and poor planning, governments of developing countries struggle to finance higher education for their citizens. Student loan scheme (SLS) offer one of the popular platforms for the financing of higher education in both developed and developing countries. Students’ loan schemes (SLSs) are acceptable cost-sharing mechanisms used worldwide by governments to reduce part of their financial burdens connected to higher education financing.

Since its emergence in 1950, SLSs have grown in polarity. Economically, students’ loans provide an alternative remedy to the financial constraints facing students; offering improved access to higher education for students from low socio-economic backgrounds who would otherwise be denied access to higher education because of their inability to pay.  It also serves as a third leg to cost-sharing and makes students more responsible and value higher education more.

Like other countries, the SLS administered in Ghana by the Students’ Loan Trust Fund (SLTF) is confronted by pockets of challenges. A major challenge is an indiscriminate manner in which funds are disbursed to recipients without combining it with other finance schemes. There is also the problem of low adoption of the SLS among Ghanaians. Scrutiny of these challenges presents an opportunity to address policy lapses undermining the effectiveness of the SLS in Ghana.

SLSs as an innovation

SLSs are lending innovations which when appropriately designed, can help point the way for financial institutions to lend a hand in higher education financing and also, impact investors’ interest in supporting access to tertiary education in emerging markets. Further, with sustainable models that provide fair terms to students and favourable returns to investors, student finance has the potential to become a growing terrain for investors.

In Ghana, commercial banks, educational institutions, churches, non-governmental organizations (NGOs) and some student bodies such as the students’ representative councils (SRCs) have supplemented governments’ efforts in providing loan products, scholarships, grants and other funding mechanisms to support student funding but these have not been adequate.

One thing necessary with the proliferation of SLSs in many countries is the need to have an innovative well-tailored module that meets the peculiar needs of a particular market. This is the sure way of making SLSs sustainable. Although admirable, introducing these innovations straight away in different markets without testing them can be disastrous.  Thus, tailoring students’ loan offerings to suit specific contexts and contents is key to the success of any such scheme. Consequently, any country/institution determined to have a well-patronized scheme should not overlook the innovation bit.

The SLS adoption challenge

Like all innovations, SLSs such as the one operating in Ghana are confronted with low adoption rates. The factors that impact adoption could be broadly categorised as technological and behavioural factors. For instance, SLSs now leverage information technology (I.T.) platforms to achieve simplicity or improve service delivery and streamline administrative procedures.

Limited literature and research are investigating how technological and behavioural factors might be impacting the adoption of the SLS among Ghanaians. However, available data from the Students’ Loan Trust Fund suggests that less than 10 per cent of eligible tertiary students in Ghana patronizes the SLS.

Assessing factors influencing the adoption of the students’ loan scheme, it could be envisaged that the relative advantage of the scheme (i.e. the added value a scheme offers compared to existing approaches in the adoption of loans); its complexity (i.e. its simplicity in use by students); its compatibility with the end-users who are the students; its observability (i.e. students’ ability to track the benefits that the scheme offers that encourages peer-to-peer recommendations); its trialability (as in how easily the scheme could be tried before full indulgence); or a combination of these factors work together as factors affecting their final decision to adopt the scheme or not to.

The adoption of a loan scheme involves decision-making.  As well, the attitude of a person is believed to have a direct link to the decision.  Organizational researchers have also argued that social norms or the social expectations of individuals go a long way to affect their financial decisions, likewise behaviours that are controlled by externalities (control behaviours).

Apart from the aforementioned factors, policy lapses also account for this low patronage. Policy changes are needed to address the myriads of misconceptions surrounding the repayment of students’ loans in Ghana.

One area of the misconception that must be addressed is the argument that lack of employment opportunities and subsequent stigmatization of loan defaulters might be responsible for low patronage.

Despite the introduction of changes to the loan application process and disbursement to improve access, patronage is still low. Further, the presence of several brilliant but needy students requiring financial assistance for higher education underpins the necessity of a paradigm shift in policy to address the bottlenecks.

Policy considerations and recommendations

From an innovation and policy perspective, Ghana’s SLS must be well-defined and designed bearing in mind the following characteristics:

  • Simple management policies to ensure universal access to the loan scheme by all eligible students.
  • An instrument of repayment should be flexible, thus allowing for shocks in the income of borrowers during the repayment period.
  • The coverage of the loan should include tuition fees, maintenance fees and other educational needs to ensure students from lower-income families are attracted to adopt the loan scheme.
  • Be tailored to suit the needs of each student with an adequate evaluation and monitoring system to ensure the sustainability of the program.

Further to the policy recommendations, the following recommendations will help address some practical bottlenecks of the SLS in Ghana:

  • Urgently address all technical challenges associated with the use of the SLS. This will help improve processes connected with applying for and repaying student loan and thus improve parentage.
  • Provide financial literacy training for students. Financial literacy training must form part of the orientation programs offered to students by the SLS.
  • A revision of the loan requirements is needed. Many student beneficiaries and those yet to apply complained about the lack of guarantors and compound interests. To make the scheme more compatible and less complex, the requirements for guarantors should be taken out completely and biometric national identifications used instead.  As well, digital address systems now in place should be used to track loan beneficiaries to enforce repayments.  Compound interest rates should be made a straight line with a little margin added to the interest rate to make up for any loss in value of funds.  These would relax the requirements.


The success of the SLS in Ghana depends on policy innovativeness. It important that existing policies and systems are redesigned to practically cater to the needs of the targeted users. Essentially, the relative advantage of the innovations (policies) over existing ones must be evident.

This concerns the effectiveness/efficiency of the new SLS system or policy in addressing issues that the old system could not properly resolve. Also, users will judge well the new policy compares with existing ones, regarding its integration and compatibility with already existing systems.

Another important factor will be the ease of usability of the new policy/system underpinned by an understanding of the extent to which it streamlines the performance of actions or procedures. When policies introduced to address SLS bottlenecks successfully demonstrate its advantages, innovativeness and ease of use to students/parents, they are more likely to adopt it.

A typical example will be the integration of the internet and other electronic/mobile phone payment systems. This is an indication that students are likely to adopt a loan scheme if they think it will enable them to accomplish their educational tasks more quickly.

The writer is the Exec. Director, Shield Insurance Brokers and Shield Microfinance Ltd

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