The determinants of student loan take-up in England

Introduction

More students in England are taking out student loans, to pay for their tuition fees and/or for living costs and are taking out larger loans.

Not all students take out loans. Yet we know little about the differences between borrowers and non-borrowers in England, despite the considerable advantages of being debt-free both during and after the study period.

This research examines which students do and do not take out tuition fees loans and maintenance loans. It looks at which factors are the most important in determining the take-up of both types of loans including the role of the student’s family income, family wealth, parental education, gender, ethnicity, and debt aversion.

Student loans in England: the context

Since the 1990s, England’s higher education funding policies have been informed by the notion of cost sharing, whereby more of the costs of higher education shift from government and taxpayers to students and their families. The key cost-sharing policies introduced have been the establishment and subsequent increases in tuition fees supported by tuition fees loans and the replacement of maintenance grants with maintenance loans for low-income students. Since 1998, all student loans in England have been income-contingent.

Because of these policy changes, more students are reliant on larger loans to fund their studies. In , 397,000 tuition fees loans were taken out by full-time students worth an average of ?2,030. By , the number of loans for tuition fees had nearly tripled to 1.1 million, a take-up rate of 94%. The average amount borrowed was over four times higher at ?8,350. The take-up of maintenance loans has similarly risen from 28% in 1990 when they were first introduced to 89% in , while the average value of these loans grew from ?390 to 14 times that amount (?5,590) .

As a result of this growth in the amounts borrowed, debt at entry into repayment reached an average of ?35,950 in 2019 up from ?2,690 in 2000 reflecting the reforms of student funding .

Influences in loan take-up

Student loan take-up is influenced by two main factors: financial need and willingness to borrow. Financial need dictates whether students who have decided to enter higher education can do so without taking out student loans, which is priily’s financial resources. Students’ willingness to borrow also influences loan take-up, which is related to a number of factors including their culture and values as well as their attitudes toward debt.

Methods

We used the Next Steps https://getbadcreditloan.com/payday-loans-mo/gainesville/ dataset, which follows the lives of English people born in 1989-90. The sample used in this paper consists of all 4,368 Next Step respondents who had enrolled in higher education by 2010 ( years old). Our analysis captures the vast majority of respondents who enter higher education as national data show that around three-quarters of first year undergraduates in England are aged 20 and under .

The results presented below stem from two analyses using multi-variate statistical methods and controlling for student demographics, their socio-economic background, and attitudes towards debt. The first describes who borrows student loans versus those who do not borrow. The second explores the take-up of the two different types of student loans available tuition fee loans and maintenance loans.

Six factors determining student borrowing

1. Parents’ wealth: Students from wealthy backgrounds are less likely to take out a student loan. Students with home-owning parents are 8.0 percentage points less likely to borrow than otherwise similar students whose parents are not homeowners. Privately educated students are 5.5 percentage points less likely to borrow than comparable state schools students. These two effects are reinforcing and independent. The take-up of both maintenance and tuition fees loans are also negatively related to the student’s family income.