Evidence on Credit Constraints, University Attendance and Income Contingent Loans
Melbourne Institute Working Paper No. 24/14
The effects of credit constraints on university participation are investigated in a setting where income contingent tuition loans are available to students. Students most likely to face credit constraints have the same or higher probability of attending university as all other students, given their high school achievement. A novel approach to handle potential bias arising from unobserved heterogeneity is proposed. An estimate of unobservable heterogeneity based on post-secondary plans reported during ninth grade is constructed. This estimate is found to explain university attendance but does not overturn results regarding the effects of credit constraints.