About N355.87 billion in student loans disbursed by the Nigeria Education Loan Fund (NELFUND) could face significant recovery difficulties when repayment begins, unless the Federal Government moves quickly to strengthen the scheme’s loan recovery system.
This warning was issued by the higher education policy think tank iRead To Live Initiative in its latest policy brief, titled “Can NELFUND Sustain Itself? Financing Nigeria’s Student Loan Scheme.”
The organisation called on the government to link NELFUND with income information held by the Nigeria Revenue Service to improve its ability to identify beneficiaries and recover outstanding loans.
It particularly highlighted the need to track graduates who are self-employed or work outside the formal payroll system.
Since the launch of its student loan portal in May 2024, NELFUND has disbursed N355.87 billion to approximately 850,000 beneficiaries.
However, the think tank said the effectiveness of the loan recovery system remains untested and could become a major challenge once beneficiaries begin reaching the repayment stage.
According to the organisation, Nigeria has approximately 18 months to improve its loan recovery infrastructure before the first group of beneficiaries who have completed the mandatory two-year post-National Youth Service Corps grace period become subject to repayment enforcement.
The group warned that without stronger mechanisms to locate borrowers and determine their incomes, a considerable portion of the loans could become difficult to recover.
Informal sector poses repayment challenge
The iRead To Live Initiative identified Nigeria’s large informal economy as one of the biggest risks to the sustainability of NELFUND.
It argued that depending mainly on employers to deduct loan repayments would leave out a significant number of graduates who are self-employed, underemployed or working outside the formal employment system.
The organisation therefore recommended using Nigeria Revenue Service income records to broaden the recovery system beyond traditional employer-based deductions.
It said the roughly 18-month period before the first enforcement window opens should be used to establish the necessary systems for tracking and recovering loans from self-employed graduates.
The think tank warned that failing to close this gap could expose NELFUND to problems similar to those that affected Nigeria’s previous student loan programmes.
It noted, however, that it would be premature to compare NELFUND’s performance directly with the earlier schemes because no NELFUND beneficiary cohort has yet entered the repayment period.
The organisation said the real test of the programme would begin once repayment obligations become active.
Concerns over current repayment framework
The think tank also raised concerns about the provisions of the Students Loans (Access to Higher Education) Act, 2024.
It pointed specifically to Section 28(4), arguing that its reliance on employer-based deductions may not provide an effective recovery mechanism for graduates outside formal employment.
According to the organisation, employer notification and deductions do not offer the same automatic coverage that payroll withholding through a tax authority could provide.
It argued that this is particularly important given the size of Nigeria’s informal workforce.
Kenya offers lessons for Nigeria
The iRead To Live Initiative also examined the experience of Kenya’s Higher Education Loans Board, which has connected its loan recovery system to the Kenya Revenue Authority and credit bureaus.
Despite these mechanisms, the organisation noted that 32.5 per cent of Kenya’s student loan portfolio was in default as of June 2025.
The figure, it said, demonstrates that linking student loans to tax authorities alone cannot completely eliminate repayment problems, particularly in economies where informal employment is widespread.
The group therefore argued that NELFUND needs a stronger and more comprehensive recovery framework, especially because Nigeria has a substantial informal labour market.
Think tank asks lawmakers to clarify interest charges
The organisation also urged the National Assembly to clarify the legal position regarding interest on NELFUND loans.
It pointed to an apparent inconsistency in the 2024 Students Loans Act, noting that the programme has been publicly presented as interest-free, while Section 17(1)(c) lists the repayment of both capital and interest among the Fund’s revenue sources.
The think tank warned that the difference between the public description of the loans and the wording of the law could potentially lead to legal disputes involving beneficiaries who took the loans on the understanding that they were interest-free.
It stressed that the long-term viability of NELFUND would depend less on the amount already disbursed and more on the decisions taken before repayment begins.
The organisation said the next 18 months would therefore be critical in determining whether NELFUND can avoid the problems that contributed to the collapse of previous student loan programmes in Nigeria.
Source: Vanguard
