The Nigeria Education Loan Fund may face significant challenges recovering the N355.87bn already disbursed to about 850,000 beneficiaries as the first cohort of borrowers approaches the repayment stage, a higher education policy think tank has warned.

The iRead To Live Initiative, in a policy brief titled “Can NELFUND Sustain Itself? Financing Nigeria’s Student Loan Scheme,” said the Federal Government had roughly 18 months to strengthen the student loan recovery system before beneficiaries who complete the mandatory two-year post-National Youth Service Corps grace period become subject to enforcement.

The warning comes as NELFUND’s loan recovery mechanism is yet to be tested, with no beneficiary cohort having reached the repayment window since the scheme began disbursements.

The think tank said one of the biggest weaknesses in the existing recovery framework was its heavy reliance on employer-based deductions, which could leave self-employed graduates and borrowers operating outside the formal economy difficult to track.

Self-employed graduates pose recovery challenge

According to the initiative, integrating NELFUND with the Nigeria Revenue Service’s income data would enable the government to identify and recover loans from self-employed graduates and other borrowers who do not receive salaries through formal payroll systems.

“The scheme’s ability to recover the disbursed loans remains untested and structurally at risk, raising the same question that sank Nigeria’s three previous student loan attempts: What happens when repayment comes due, and the borrowers cannot be found?”

The organisation argued that Nigeria’s large informal workforce made employer-based loan deductions insufficient as the primary recovery mechanism.

It said the government should use the remaining period before enforcement begins to establish a more comprehensive system capable of tracking borrowers regardless of their employment status.

“The central recommendation is straightforward: use the roughly 18 months before the first cohort’s enforcement window opens to integrate NELFUND with Nigeria Revenue Service income data, extending recovery capacity to self-employed graduates rather than relying on employer withholding alone.”

N355.87bn already disbursed

NELFUND has disbursed N355.87bn in student loans since the launch of its portal in May 2024, according to the policy brief.

The funds have gone to approximately 850,000 beneficiaries, but the think tank cautioned that the scale of disbursement should not be confused with the sustainability of the scheme.

“No cohort has yet reached the repayment window,” the initiative noted, stressing that the real test of NELFUND would begin when beneficiaries become liable to repay their loans.

It warned that without urgent improvements to the recovery architecture, the scheme could encounter the same difficulties that undermined previous attempts at student financing in Nigeria.

“Nigeria has tried student loans three times before. Each one collapsed because loans went out faster than the government could ever recover them.”

Employer deductions may not be enough

The initiative said the current framework assumes that borrowers would eventually secure formal employment, allowing repayments to be deducted through employers.

However, it noted that this approach may fail to capture graduates who become self-employed, underemployed or earn their livelihoods within the informal sector.

The policy brief said the employer-notification provision under Section 28(4) of the Students Loans (Access to Higher Education) Act, 2024, “is not automatic in the way payroll withholding through a tax authority is, and it does nothing for the self-employed majority Section 28(4) also depends on.”

The think tank therefore urged the Federal Government to integrate NELFUND’s recovery infrastructure with tax and income records before the first repayment cycle begins.

It maintained that the coming 18 months would be critical to determining whether the current student loan programme could become financially sustainable.

“Whether Nigeria breaks its decades-long pattern of failed student loan schemes will be decided by choices made now, not by the scale of what has already been disbursed,” the initiative stated.