Education plays a central part in a household’s consumption budget, with education being the second priority after food, at 30.2% compared to food which had a priority of 31.8%, according to the Kenya National Bureau of Statistics Finaccess Household Survey report. The Kenyan government continues to make significant allocations towards education expenditure in every fiscal year. In FY’2023/2024, the education sector received the second largest share of the government expenditure, with the government increasing its allocation to the sector by 15.5% to Kshs 628.6 bn from Kshs 544.4 bn in FY'2022/2023. The allocation represented 4.3% of the GDP, up from 4.0% of GDP in FY’2022/2023. Below is a chart showing a percentage of education expenditure against total government expenditure and against GDP:
Despite government interventions in funding the education sector, education costs are still a burden to guardians, leading to a growth in the number of applicants for the loans issued by the Higher Education Loan Board (HELB). According to the Kenya National Bureau of Statistics (KNBS) Economic Survey 2023, the total number of HELB loan applicants increased by 27.9% to 481,027 applicants in FY’2021/22 from 376,137 applicants in FY’2020/21. However, despite the increase in applicants, the number of loan beneficiaries only rose by a paltry 0.4% to 343,055 from 341,606 in FY’2020/21. As a result, the number of unsuccessful applicants increased by 299.7% to 137,900 in FY’2021/22 from 34,500 in FY’2020/21. Additionally, there were 481,027 applicants for bursaries from the HELB in FY’2021/2022, out of which only 37,982 applicants were awarded bursaries, a 2.7% decline from the 39,055 in FY’2020/21.
This highlights the importance why guardians should look for alternative ways to support education expenses. Financial services firms have seized the chance to solve these challenges by developing products (Education Investment Plans) to assist parents in saving and investing in their children's education. Education Investment Plans are medium to long-term savings and investment plans promoted by a financial institution, such as an insurance company or an asset manager. In terms of structure, Education Investment Plans are clearly distinguished by the fact that they frequently have an investment lock-in period during which the guardian is expected to make periodic contributions. These funds then gain interest and help the contributor attain their financial goals. The beneficiary of the funds could be a dependent, or one may save for their own education.
Education investment plans have a number of benefits to guardians, which include: i) Promotion of financial freedom, ii) Reduce the need for debt, iii) Act as a contingency measure in case of unexpected events such as job retrenchment, iv) Peace of mind, and v) Offer tax relief of 15.0% of the premium, subject to a maximum tax relief of Kshs 5,000.0 per month or Kshs 60,000.0 per year. However, Education Investment plans continue to face a number of challenges which has continued to hamper the growth of these products, with key challenges being: i) low returns on investments, ii) Negative publicity due to historical negative experience of some customers, and iii) Education Investment plans have a complex structure which makes it difficult for people to understand.
It is essential that before making any investment decision consult a financial advisor in order to understand better what you are getting into, before signing any binding agreement. Different Education Investment Plans have unique advantages and disadvantages, so choosing a product that matches your needs and goals is important. Additionally, there are various investment avenues, such as money markets and bank savings, whereby individuals can take advantage of when financially planning for education.
For more information, please see our report on the Education Investment Plans in Kenya