Funding education in Nigeria: Student Loan or Student Grant

Two primary mechanisms—student loans and student grants—are often at the forefront of every education discussion. Both options aim to provide financial assistance, but they operate differently and have distinct implications for students’ futures. Grants are non-repayable financial awards given to students to assist with the costs associated with their education. Proponents of grants argue that they are a crucial investment in the future of the country. Nigeria’s economic challenges are well-documented, with high unemployment rates and a substantial proportion of the population living below the poverty line.

For many families, the cost of higher education is simply unaffordable. Grants provide relief to these families, ensuring that talented students are not excluded from higher education due to financial constraints.Given the high unemployment rates in Nigeria, the prospect of graduating with significant debt can be daunting. Grants eliminate the need for repayment, allowing graduates to focus on securing employment or starting their own businesses without the added pressure of repaying a loan. On the other hand, student loans are funds that students must repay after graduation, usually with interest. Advocates for student loans believe that they offer a sustainable model for funding higher education. Unlike grants, loans create a revolving fund where repayments from graduates are used to fund future students. This ensures that the program can support more students over time without constantly draining government resources. By taking out loans, students become more financially aware and responsible. The obligation to repay the loan encourages them to take their education seriously, as their future financial stability is tied to their academic success. The need to repay a loan can serve as a strong motivator for graduates to seek employment or entrepreneurship opportunities quickly after graduation. This urgency can potentially reduce the period of unemployment post-graduation.

The Student Loan Bill was signed into law by President Bola Tinubu in June 2023. This law is aimed at providing financial assistance to Nigerian students seeking higher education but who may not have the means to afford it on their own.

In Nigeria, as in many other countries, the debate between student loans and grants has gained momentum, especially with the recent introduction of a student loan scheme by the Nigerian government. This debate is not just about financial aid; it’s about accessibility, equity, and the future of a generation. Also, it’s a discussion about which of the two the education sector really needs. The decision between taking on debt through a loan or relying on the financial support of a grant is complex, with each option carrying its own set of benefits and drawbacks.

Student loans and grants serve as crucial financial tools to support students in their educational pursuits, but they function in fundamentally different ways. Loans, as the name implies, must be repaid, often with interest, while grants are essentially gifts that do not require repayment. Both have their advantages and disadvantages, and the choice between them can have a lasting impact on a student’s life, influencing their career choices, financial stability, and overall well-being.

Understanding Student Loan

Student loans are funds borrowed by students to pay for their education. These loans are typically offered by the government or private institutions and must be repaid with interest. The repayment usually begins after the student has graduated and secured employment, although terms can vary.

The loan is available to Nigerian students enrolled in public federal and state-owned tertiary institutions across the country. These loans are meant to make higher education accessible to those who otherwise might not be able to afford it. By spreading the cost of education over many years, students can pursue their academic goals without the immediate financial burden. To qualify, students must have secured admission and be studying a course that leads to a recognised qualification.

The loan is offered at a very low interest rate of 3% per annum. This is to ensure that repayment is manageable for graduates once they enter the workforce.
Repayment is expected to start two years after completing the National Youth Service Corps (NYSC) programme or upon securing a job, whichever comes first. The repayment period is structured to allow graduates to repay comfortably based on their earnings.
The loan is managed by the Nigerian Education Bank, which will be responsible for disbursing the funds, monitoring repayments, and managing defaulters.

However, as juicy as this may look, it has many disadvantages considering the fact that “the unemployed people in Nigeria is forecast to 3.54m in 2024” – according to Statista. One of the most significant drawbacks of student loans is the debt burden they place on graduates. High levels of debt can delay important life decisions such as buying a car, buildinga house, starting a family, or pursuing further education. Interest on student loans can accumulate quickly, increasing the overall amount that needs to be repaid. This can be particularly challenging in economies with high unemployment rates, where graduates may struggle to find well-paying jobs.

Also, there are strict penalties for defaulting on the loan. If a borrower fails to repay the loan within the stipulated time, they could face legal action and potential jail time. Parents or guardians may need to co-sign the loan as guarantors, depending on the circumstances, to ensure that the loan is repaid. Taking on a loan can instill a sense of financial responsibility in students, teaching them to manage debt and plan for the future.

What Are Student Grants?

Student grants on the other hand are funds provided to students to pay for their education, and unlike loans, they do not need to be repaid. Grants are usually awarded based on financial need, academic achievement, or specific criteria set by the granting institution. The most significant advantage of a grant is that it does not need to be repaid. This means that students can graduate debt-free, allowing them to start their careers without the burden of loan repayments.

Grants can help level the playing field by providing financial assistance to students from low-income backgrounds or those facing other disadvantages, ensuring that education is accessible to all. Grants often come with requirements for maintaining a certain academic standard. This can motivate students to perform well in their studies. In Nigeria, government and private organisations offer grants to deserving students yearly or as the case may be.

Grants are often limited and highly competitive. Not all students who apply for grants will receive them, which can leave many without the financial support they need. Students who are average in their studies and are in dire need of the grant may not have access to it. Grants are typically awarded based on specific criteria, which means that students who do not meet these criteria may not qualify, regardless of their financial need. In addition, relying solely on grants can create a dependency on external aid, which may not be sustainable in the long term.

Student Loans and Grants

Recall that in June 2023, the Nigerian government introduced a student loan scheme designed to make higher education more accessible. Barely a month after his inauguration, President Bola Tinubu signed the Access to Higher Education Act, which creates a legal framework for granting loans to indigent or low-income Nigerians to facilitate the payment of their fees in Nigerian tertiary institutions. The law, reenacted earlier this year, created the Nigerian Education Loan Fund.

Recently, the Fund announced that it paid the N20,000 monthly stipend to over 20,000 students.The government and educational institutions play a crucial role in determining the availability and accessibility of both loans and grants. It is essential that they work together to create a balanced system that provides support to all students, regardless of their financial background.This initiative was hailed as a significant step towards addressing the financial barriers that prevent many Nigerians from pursuing tertiary education. The choice between student loans and grants depends on various factors, including a student’s financial situation, academic performance, and career goals. For many, grants may be the preferred option due to the lack of repayment obligations. However, student loans can provide a necessary lifeline for those who do not qualify for grants or who need additional financial support.

A potential solution could be a hybrid model that incorporates both grants and loans:Grants could be reserved for the most vulnerable students—those from low-income families or those studying high-demand fields like medicine, engineering, or education. This ensures that the brightest and most disadvantaged students receive the support they need. Loans could be structured in a way that repayments are contingent on the graduate’s income. This means that graduates only start repaying their loans once they reach a certain income threshold, reducing the financial pressure on those who are unemployed or earning a low income. To further ease the burden, institutions could offer work-study programs that allow students to earn money while studying. This would not only help cover their expenses but also provide them with valuable work experience.

In conclusion, the debate between student loans and grants is complex and multifaceted. Both have their advantages and disadvantages, and the choice between them can significantly impact a student’s future. In Nigeria, the recent introduction of the student loan scheme marks a significant step towards making education more accessible, but it also presents challenges that must be addressed. For Nigerian students, the ideal scenario would be a combination of both loans and grants, tailored to meet individual needs and circumstances. By providing a range of financial aid options, the government and educational institutions can help ensure that all students have the opportunity to pursue their educational goals without being held back by financial constraints.

Ultimately, the goal should be to create a system that promotes equity, accessibility, and financial sustainability, ensuring that education remains a tool for empowerment and social mobility in Nigeria.

In Nigeria, where unemployment rates are high and the job market is unpredictable, the burden of repaying a student loan can be daunting. For many students, the prospect of starting their careers with significant debt is a major concern. This makes grants a more attractive option, as they provide financial support without the obligation of repayment.