The Higher Education Loans Board could lose about Sh4 billion if the president assents to a Bill passed by MPs last week.
Helb Chief Executive Officer Charles Ringera said borrowers had started writing to the agency seeking to be excused from repaying.
“The country must decide. The National Treasury should fully fund higher education without the prospects of repayment or come up with structures that make this a revolving fund,” he said.
Last week, MPs passed a Bill shielding graduates from paying interest on government loans if they failed to land jobs. The Bill, sponsored by Kiharu MP Irungu Kangata, also grants students two slots on the Helb board to protect their interests.
Jobless graduates will sign affidavits every year indicating that they are unemployed.
About 77,000 Kenyans received Helb loans but are yet to repay them. The total debt stands at Sh7.9 billion.
The agency supports 135,000 university students in Kenya, Uganda and Rwanda.
Mr Ringera said the board had mobilised about Sh200 million from private corporations, donors, constituencies and counties this year.
“The main message to them has been that we have the muscle and power to recover what they can’t,” added the CEO.
“That power has been taken away by a socialist Bill. Who will be ready to put money into Helb if we can’t recover a penny?”
Mr Ringera said the overall demand for Helb is Sh9.3 billion this year.
“The National Treasury was to provide at least Sh6.8 billion and recoveries stood at Sh2.5 billion. Sh1 billion would go to operations,” the CEO said.
He said the board has Sh4.8 billion though the shortage stood at Sh1.55 billion, an amount that would be sourced from corporations.
“Counties and constituencies promised us Sh250 million, but this will come after students have reported to universities,” he said.
The Bill gives regular students in public universities priority over those pursuing parallel programmes and in private universities.
However, those on parallel programmes and in private universities, which admit students on account of their financial ability, would be entitled to the loans provided they show they cannot raise fees.
About 60,000 students who sat the Kenya Certificate of Secondary Education examination last year and qualified for government loans could miss the support.
Helb has indicated that it may only be able to finance about 34,000 students.
A total of 67,790 students have been selected to join public universities, another 12,000 will go to colleges and more than 20,000 will be admitted to private universities.
Addressing students and parents at United States International University on Saturday, Cord leader Raila Odinga said there was need to find ways of making loans adequate and rethink how to make students repay without feeling punished for attaining university education.