Challenges and opportunities of introducing private student loan schemes in developing countries: case of Rwanda

Abstract

Financing higher education through student loans has become critical in both developing and developed countries. Various student loan programs in different countries around the world were examined in this study and Rwanda as a case study was also included. This research aimed at examining existing student loan schemes in Rwanda and exploring potential challenges and opportunities of introducing new non government or private student loan schemes. The study was mainly qualitative. The researcher collected both primary and secondary data. Primary data was collected through questionnaires and interviews, whereas secondary data was collected from reports, articles, books and journals. The sample techniques used in this research were purposive and convenience sampling both for questionnaire respondents and interviewees. The findings revealed that both government and non government student loans are found in developed countries, while only government student loans are found in most of the developing countries. In Rwanda, both government and private student loans are available, though they are at the beginning stages: SFAR manages the government loan, whereas one bank namely KCB-Rwanda has already started a private student loan product called Masomo loan and UOB which plans to launch two private student loan products before the end of the year 2011. This study also described various opportunities and challenges of introducing private student loans all over the world and specifically in Rwanda. The advantages include providing opportunities to many students, including those from poor families, making students and parents aware of the educational cost, and motivating them to pay back their loans after graduation. Regarding challenges, the main challenges described include high capital investment and regular addition of capital required by student loans, potential losses involved due to deaths, default, unemployment, illnesses and lack of students‟ guarantees which makes banks reluctant to give loans. It was concluded that a private student loans scheme should be explored and given priority by both public and private institutions to make sure it is studied carefully. However, private student loans should not be considered as a panacea - other forms of student support such as scholarships and grants should also be taken into account.