Influence of financial literacy programs on student loan Management in universities: case of Mount Kenya University

Abstract

Effective student loan management is a critical factor in ensuring financial stability among university students. This study aimed to assess the Influence of financial literacy programs on student loan management at Mount Kenya University. The specific objectives included evaluating the influence of understanding interest rates and loan repayment terms, the effect of budgeting and financial planning skills, and the role of awareness and utilization of loan repayment options on loan management practices. The study was significant as it provided valuable insights for policymakers, university administrators, and financial bodies such as the Higher Education Loans Board (HELB) on designing effective financial literacy interventions. Grounded in the Theory of Planned Behavior and Human Capital Theory, the study adopted a descriptive survey research design. The research was conducted at Mount Kenya University, targeting a population of 40,200 HELB-supported students and 56 finance staff members. A stratified random sampling method was used to determine a sample size of 436 participants, ensuring comprehensive representation across the university’s campuses. Data collection tools included semi-structured questionnaires for students and interview guides for finance staff, supplemented by institutional records. Pilot testing of instruments ensured validity and reliability, with Cronbach's alpha used to confirm internal consistency. Data analysis was performed using descriptive and inferential statistics via SPSS version 23.0, employing techniques such as Pearson correlation and regression analysis to determine relationships among variables. The study assessed the influence of financial literacy on student loan management, focusing on understanding interest rates and repayment terms, budgeting and financial planning skills, and awareness of loan repayment options. The findings revealed that many students lacked knowledge of interest accrual, repayment conditions, and penalties, leading to financial mismanagement and higher debt burdens. However, students with better financial literacy demonstrated responsible loan management. Similarly, budgeting and financial planning skills were found to be critical in ensuring timely repayments, while poor financial habits led to financial strain and loan default. Additionally, limited awareness of repayment options restricted students from utilizing flexible plans that could ease their financial burden. The study concluded that financial literacy significantly impacts student loan management, with well-informed students managing loans more effectively. Budgeting and financial planning skills also play a crucial role in preventing loan default, while lack of awareness of repayment options exacerbates financial difficulties. The study recommended that universities and financial institutions introduce mandatory financial literacy programs and integrate budgeting courses into curricula. Student loan providers should enhance awareness campaigns on repayment options, while universities should establish financial advisory offices. Further research should explore the effectiveness of financial literacy programs, compare loan repayment practices across institutions, and examine the role of employment in loan repayment.