How declining student numbers and State funding pushed UoN into Sh17.2bn debt

The University of Nairobi's financial troubles have been fuelled by a double blow of reduced government support and dwindling income from privately sponsored students, leaving the institution with billions of shillings in unpaid obligations and an increasingly difficult debt burden.

The university's financial position has deteriorated over several years, with changes in government funding, declining student enrolment and rising operational costs combining to weaken its revenue base.

The situation has been made worse by billions of shillings in statutory deductions that remain unpaid, alongside penalties and interest that continue to increase its liabilities.

Financial records presented to Parliament show that UoN is carrying Sh17.2 billion in current liabilities, against current assets worth Sh8.94 billion. This translates into negative working capital of Sh8.25 billion, meaning the institution's short-term financial obligations far exceed the resources available to meet them.

A large share of the outstanding debt is linked to statutory deductions and pension contributions that the university has failed to remit over the years.

The institution owes Sh12.5 billion to the Kenya Revenue Authority (KRA) and its pension scheme. By June 2025, the unpaid amounts included Sh4.2 billion in Pay As You Earn (PAYE), Sh8.1 billion in pension contributions, Sh40.2 million in housing levy, Sh25.6 million in National Social Security Fund (NSSF) contributions and Sh19.1 million in Social Health Insurance Fund (SHIF) deductions.

The outstanding amounts have continued to attract penalties and interest, adding to the university's financial burden and making it harder to clear the accumulated obligations.

Vice-Chancellor Ayub Gitau told the National Assembly Public Investments Committee on Governance and Education (PIC-G&E) that the financial difficulties could be traced to the 2017/2018 financial year, when a new university funding arrangement was introduced at a time when income from privately sponsored students was also declining.

Prof Gitau identified reduced government allocations, falling revenue from Module II programmes, increased personnel expenses, the Covid-19 pandemic and delays in funding under the new higher education financing system as some of the factors behind the institution's worsening financial position.

The introduction of the Differentiated Unit Cost (DUC) model in 2017/2018 marked a major shift in how public universities received government support.

Under the arrangement, the State committed to meeting 80 per cent of tuition costs, while households were expected to finance the remaining 20 per cent. However, the Universities Fund (UF) struggled to honour its funding commitments because of budgetary constraints, leaving universities exposed to persistent cash shortages.

The shortfall was reflected in the amount of money allocated to UoN, with government capitation falling despite the institution's continued financial obligations.

"Subsequently, government capitation to UoN declined by 30 per cent, with annual allocations falling from Sh6.3 billion to Sh4.5 billion," Prof Gitau told the National Assembly Public Investments Committee on Governance and Education (PIC-G&E).

The situation did not improve in the following years, as government disbursements consistently covered only 40 to 55 per cent of the 80 per cent of training costs that the State had pledged to finance.

In the 2024/2025 financial year, the university received just Sh1.4 billion in government capitation, further widening the difference between its funding requirements and the money available to run its operations.

The funding challenges were also highlighted in the 2023 report by the Presidential Working Party on Education Reform (PWPER), which examined the government's contribution to university training costs.

The report showed that State funding as a proportion of the Differentiated Unit Cost had fallen from 66.4 per cent in 2018/2019 to 48.1 per cent in 2022/2023, pointing to a growing gap between the government's funding commitments and actual allocations.

While government support was declining, UoN was also losing revenue from its Module II programme, which had traditionally provided a major source of income for public universities.

The programme, commonly known as parallel degree courses, allowed students who qualified for university admission but were not placed under government-sponsored programmes to pursue higher education by paying their own fees.

For years, income from these privately sponsored learners helped universities finance their operations and meet expenses that government allocations could not fully cover.

However, the number of students enrolling through the programme began falling following education reforms introduced under former Education Cabinet Secretary Fred Matiang'i.

The reforms, which were aimed at addressing cheating in national examinations, coincided with a reduction in the number of candidates attaining the minimum university entry grade of C+.

This reduced the number of learners eligible for university admission, affecting both regular and privately sponsored programmes. With fewer students qualifying for admission, universities also experienced a decline in the number of those willing and able to enrol through the fee-paying Module II system.

The drop in enrolment dealt a further blow to UoN's finances, as the university could no longer rely on the programme to generate the same level of income it had received in previous years.

"The shrinking of module II students' admission led to a drop in Module II fees, which fell to Sh 4.4 billion from Sh6.2 billion annually generated in previous years," Prof Gitau told the team chaired by Luanda MP Dick Maungu.

The loss of this revenue stream, combined with reduced government funding and rising financial obligations, left the university increasingly dependent on limited resources as its unpaid bills and statutory liabilities continued to accumulate.