Loans for Higher Education: Does the Dream Come True?
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
We are indebted to the useful comments of Lori Beaman, Luc Behaghel, Claudio Ferraz, Salvador Navarro, Giordano Palloni, Esteban Puentes, Rodrigo Soares, Jean-Marc Robin, Bernardita Vial, Mauricio Villena and seminar participants at the annual meeting of the Society for Economics Dynamics (Cyprus, 2012), North American Summer Meeting of the Econometric Society (Evanston, 2012), PUC Rio (Brazil, 2012), IADB (DC, 2012), IZA (Germany, 2012), Toulouse School of Economics (France, 2012), Paris School of Economics (France, 2012), 34th Meeting of the Brazilian Econometric Society (Brazil, 2012), Pontificia Universidad Catolica de Chile (Chile, 2012), Universidad de Chile (Chile, 2011), and the World Bank (DC, 2011). We thank the Finance Ministry of Chile and its Budget Office for providing us access to the data. Tomas Rau and Sergio Urzua thank the support of Centro de Microdatos at the University of Chile through the Millennium Science Initiative sponsored by the Chilean Ministry of Economics, Development and Tourism, Project NS100041. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.