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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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    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.
    5. Pessino, Carola & Izquierdo, Alejandro & Vuletin, Guillermo, 2018. "Better Spending for Better Lives: How Latin America and the Caribbean Can Do More with Less," IDB Publications (Books), Inter-American Development Bank, number 9152, March.
    6. Wright, Nicholas A., 2021. "Need-based financing policies, college decision-making, and labor market behavior: Evidence from Jamaica," Journal of Development Economics, Elsevier, vol. 150(C).
    7. Arlen Guarín & Sebastián Londoño & Carlos Medina & Julieth Parra & Christian Posso & Carlos Eduardo Vélez, 2016. "Estimating the Effect of Attending a Public versus a Private University in Colombia on Academic Achievement **** Una Estimación del Efecto sobre el Rendimiento Académico de Asistir a una Universidad P," Borradores de Economia 968, Banco de la Republica de Colombia.
    8. Adriana Camacho & Catherine Rodríguez & Fabio Sanchez, 2022. "Does financial aid for top international graduate programs boost education and earnings? Evidence from Colombia," Documentos CEDE 20124, Universidad de los Andes, Facultad de Economía, CEDE.
    9. Gurgand, Marc & Lorenceau, Adrien & Mélonio, Thomas, 2023. "Student loans: Credit constraints and higher education in South Africa," Journal of Development Economics, Elsevier, vol. 161(C).
    10. Han, Sung min, 2016. "Student Academic Performance, Dropout Decisions and Loan Defaults: Evidence from the Government College Loan Program," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 38(1), pages 71-91.
    11. Nicolás Rivera G., 2017. "Acceso a la educación superior ¿Tiene un efecto disuasivo sobre el crimen juvenil? Evidencia para Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 20(1), pages 026-049, April.
    12. Aguirre, Josefa, 2021. "Long-term effects of grants and loans for vocational education," Journal of Public Economics, Elsevier, vol. 204(C).
    13. Ana Maria Montoya & Carlos Noton & Alex Solis, 2017. "Returns to Higher Education: Vocational Education vs College," Documentos de Trabajo 334, Centro de Economía Aplicada, Universidad de Chile.
    14. Isabela Duarte & Joao de Mello, 2016. "The Effect of the Availabilty of Student Credit on Tuitions: Testing the Bennet Hypothesis using Evidence from a Large-Scale Student Loan Program in Brazil," 2016 Meeting Papers 1451, Society for Economic Dynamics.
    15. Alonso Bucarey & Dante Contreras & Pablo Muñoz, 2018. "Labor Market Returns to Student Loans," Working Papers wp464, University of Chile, Department of Economics.

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    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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