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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

Suggested Citation

  • Tomás Rau & Eugenio Rojas & Sergio Urzúa, 2013. "Loans for Higher Education: Does the Dream Come True?," NBER Working Papers 19138, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19138
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    References listed on IDEAS

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    1. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 7-36, October.
    2. 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, vol. 106(2), pages 262-333, April.
    3. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
    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, vol. 98(5), pages 2163-2184, December.
    5. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers 710, Princeton University, Department of Economics, Industrial Relations Section..
    6. Diego Restuccia & Carlos Urrutia, 2004. "Intergenerational Persistence of Earnings: The Role of Early and College Education," American Economic Review, American Economic Association, vol. 94(5), pages 1354-1378, December.
    7. Claudio Sapelli., 2009. "Los Retornos a la Educación en Chile: Estimaciones por Corte Transversal y por Cohortes," Documentos de Trabajo 349, Instituto de Economia. Pontificia Universidad Católica de Chile..
    8. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers 710, Princeton University, Department of Economics, Industrial Relations Section..
    9. David Bravo Urrutia & Claudia Sanhueza & sergio Urzúa, 2007. "Ability, Schooling Choices And Gender Labor Market Discrimination: Evidence For Chile," Working Papers wp265, University of Chile, Department of Economics.
    10. Todd Stinebrickner & Ralph Stinebrickner, 2012. "Learning about Academic Ability and the College Dropout Decision," Journal of Labor Economics, University of Chicago Press, vol. 30(4), pages 707-748.
    11. Lang, Kevin, 1994. "Does the Human-Capital/Educational-Sorting Debate Matter for Development Policy?," American Economic Review, American Economic Association, vol. 84(1), pages 353-358, March.
    12. Alex Solis, 2017. "Credit Access and College Enrollment," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 562-622.
    13. Joshua Goodman, 2010. "Skills, Schools, and Credit Constraints: Evidence from Massachusetts," Education Finance and Policy, MIT Press, vol. 5(1), pages 36-53, January.
    14. Susan Dynarski, 2002. "The Behavioral and Distributional Implications of Aid for College," American Economic Review, American Economic Association, vol. 92(2), pages 279-285, May.
    15. Satyajit Chatterjee & Felicia Ionescu, 2012. "Insuring student loans against the financial risk of failing to complete college," Quantitative Economics, Econometric Society, vol. 3(3), pages 393-420, November.
    16. 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. Alex Solis, 2017. "Credit Access and College Enrollment," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 562-622.
    2. Rojas, Eugenio & Sánchez, Rafael & Villena, Mauricio G., 2016. "Credit constraints in higher education in a context of unobserved heterogeneity," Economics of Education Review, Elsevier, vol. 52(C), pages 225-250.
    3. Cáceres-Delpiano, Julio & Giolito, Eugenio & Castillo, Sebastián, 2018. "Early impacts of college aid," Economics of Education Review, Elsevier, vol. 63(C), pages 154-166.
    4. 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.

    More about this item

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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