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Measuring the Effect of Student Loans on the College Dropout Rate

Author

Listed:
  • Solis, Alex

    (Department of Economics)

Abstract
Most governments around the world offer student loans to help disadvantaged students to enroll in college to reduce the attainment gap between rich and poor. However, we know little about the consequences of these loans. The reduction of the gap depends not only on initial enrollment but also on the dropout rate before graduation. This paper shows how the availability of loans affects the dropout rate in college. Two programs in Chile assign loans based on a cutoff in the national college admission test, enabling a regression discontinuity design. The analysis uses on students who were not induced by the loan to enroll in the first year. I show that access to loans reduces the dropout rate by 25 percentage points and is highly persistent over time (up to the fifth year after initial enrollment). At the cutoff, access to loans allows eliminating the differences in the dropout rate by family income. Finally, I find that students are not sensitive to tuition costs when loans are available.

Suggested Citation

  • Solis, Alex, 2019. "Measuring the Effect of Student Loans on the College Dropout Rate," Working Paper Series 2019:8, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:2019_008
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    College; Dropout; Persistence; College loans; Regression discontinuity; Chile;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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