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Loans for Higher Education: Does the Dream Come True?

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  • Tomás Rau
  • Eugenio Rojas
  • Sergio Urzúa

Abstract

This paper analyzes the impact of student loans for higher education on enrollment, dropout decisions, and earnings. We investigate the massive State Guaranteed Loan (SGL) program implemented in Chile in 2006. Our empirical analysis is based on the estimation of a sequential schooling decision model with unobserved heterogeneity. We supplement this model with labor market outcomes. The model is estimated using rich longitudinal data generated from administrative records. Our findings show that the SGL program increased the probability of enrollment and reduced the probability of dropping out from tertiary education: SGL reduced the first year dropout rate by 6.8% for students enrolled in five-year colleges and by 64.3% for those enrolled in institutions offering two- or four-year degrees. Moreover, we document that the SGL program has been more effective in reducing the probability of dropping out for low-skilled individuals from low-income families. When analyzing labor market outcomes, we find that SGL beneficiaries have lower wages (up to 6.4% less) than those who did not "benefit'' from the program. We attribute this negative result to the design of the SGL program, which has incentivized higher education institutions to retain students at the expense of not securing the quality of education

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19138.

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Date of creation: Jun 2013
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Handle: RePEc:nbr:nberwo:19138

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References

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  1. David Card, 1994. "Earnings, Schooling, and Ability Revisited," NBER Working Papers 4832, National Bureau of Economic Research, Inc.
  2. Claudio Sapelli., 2009. "Los Retornos a la Educación en Chile: Estimaciones por Corte Transversal y por Cohortes," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 349, Instituto de Economia. Pontificia Universidad Católica de Chile..
  3. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," NBER Working Papers 9055, National Bureau of Economic Research, Inc.
  4. Ralph Stinebrickner & Todd Stinebrickner, 2008. "The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 2163-84, December.
  5. Diego Restuccia & Carlos Urrutia, 2004. "Intergenerational Persistence of Earnings: The Role of Early and College Education," American Economic Review, American Economic Association, American Economic Association, vol. 94(5), pages 1354-1378, December.
  6. Lang, Kevin, 1994. "Does the Human-Capital/Educational-Sorting Debate Matter for Development Policy?," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 353-58, March.
  7. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(2), pages 262-333, April.
  8. Todd Stinebrickner & Ralph Stinebrickner, 2008. "Learning About Academic Ability and the College Drop-Out Decision," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers, University of Western Ontario, CIBC Centre for Human Capital and Productivity 20086, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  9. Satyajit Chatterjee & Felicia Ionescu, 2012. "Insuring student loans against the financial risk of failing to complete college," Quantitative Economics, Econometric Society, Econometric Society, vol. 3(3), pages 393-420, November.
  10. Susan Dynarski, 2002. "The Behavioral and Distributional Implications of Aid for College," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 279-285, May.
  11. David Bravo & Claudia Sanhueza & Sergio Urzua, 2008. "Ability, Schooling Choices and Gender Labor Market Discrimination: Evidence for Chile," Research Department Publications, Inter-American Development Bank, Research Department 3258, Inter-American Development Bank, Research Department.
  12. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages S7-36, October.
  13. Thomas J. Kane, 1996. "College Cost, Borrowing Constraints and the Timing of College Entry," Eastern Economic Journal, Eastern Economic Association, vol. 22(2), pages 181-194, Spring.
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Cited by:
  1. Solis, Alex, 2013. "Credit Access and College Enrollment," Working Paper Series, Uppsala University, Department of Economics 2013:12, Uppsala University, Department of Economics.
  2. Justine S. Hastings & Christopher A. Neilson & Seth D. Zimmerman, 2013. "Are Some Degrees Worth More than Others? Evidence from college admission cutoffs in Chile," NBER Working Papers 19241, National Bureau of Economic Research, Inc.

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