Working Paper: NBER ID: w19138
Authors: Tomas Rau; Eugenio Rojas; Sergio Urzua
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. \n\nOur 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
Keywords: student loans; higher education; enrollment; dropout; labor market outcomes
JEL Codes: C31; D14; I24; I28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SGL program (C88) | probability of enrollment in higher education (I23) |
| SGL program (C88) | probability of dropping out during the first year (university students) (I21) |
| SGL program (C88) | probability of dropping out during the first year (TIPIs) (I21) |
| SGL program (C88) | lower wages for beneficiaries (J31) |
| SGL program (C88) | education quality (negative impact) (I24) |