Determinants of student loan take-up: theoretical framework and previous evidence

Similarly, students’ family characteristics were significantly correlated with loan take-up in earlier studies (Callender and Kemp 2000; Finch et al

Financial need dictates whether students who have decided to enter university can do so without taking out student loans, which is priily’s financial resources (Oosterbeek and van den Broek 2009; West et al. 2015). Students from high-income backgrounds are consistently better off throughout higher education and subsequently in the labour market because of their economic, cultural and social advantages (Crawford et al. 2016; Forsyth and Furlong 2003; Haveman and Smeeding 2006).

Evidence on the importance of financial need indicators, however, is somewhat mixed. Low parental social class and parental income are found in some studies to be associated with higher loan take-up (Callender and Wilkinson 2003; Ferreira and Farkas 2009; Johnes 1994; Johnson et al. 2009; Maher et al. 2018; Payne and Callender 1997; Oosterbeek and van den Broek 2009; Pollard et al. 2013; Purcell et al. 2008). Yet two English studies based on the Student Income and Expenditure Surveys (SIES) (the main dataset on students’ finances in England) and focusing on maintenance loans prior to 2006 find no relationship (Callender and Kemp 2000; Finch et al. 2006). Parental education-an indirect proxy for family resources-was not associated with loan take-up in early SIESs (Finch et al. 2006; Johnson et al. 2009; Pollard et al. 2013), but the latest SIES did find a relationship (Maher et al. 2018).

Students can potentially reduce their financial need and reliance on loans by adopting debt avoidance mechanisms’, for instance, by living at home with their family or undertaking paid work while studying (Artess et al. 2014; Bates et al. 2009; Callender 2008). Lower maintenance loan take-up is consistently found to be related to students living at home (Callender and Kemp 2000; Callender and Wilkinson 2003; Finch et al. 2006; Johnson et al. 2009; Maher et al. 2018; Payne and Callender 1997; Pollard et al. 2013), while higher loan take up has been linked to living off campus compared with living on campus (Johnes 1994; Payne and Callender 1997). By contrast, having a paid job appears unrelated to student loan take-up (Callender and Kemp 2000; Callender and Wilkinson 2003; Johnes 1994; Payne and Callender 1997). Yet these mechanisms may adversely affect students’ higher education experience and subsequent labour market opportunities. Living at home is associated with missing out on the full’ student experience and the social networks built at university (Malcolm 2015), while working during term-time can lead to lower academic performance as well as a higher likelihood of drop-out (Callender 2008; Curtis and Shani 2002; Hovdh).

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 towards debt (Harrison et al. 2015; Haultain et al. 2010). Some students, especially from wealthy backgrounds, have an incentive to arbitrage increasing their willingness to borrow (Barr 2010). Footnote 4 Students who are already in debt-for instance with overdrafts, commercial credit and credit card debt-also appear more willing to borrow and have higher maintenance loan take-up than those without such debt (Callender and Kemp 2000; Gayle 1996; Johnes 1994; Payne and Callender 1997). This demonstrates the importance of attitudes towards debt. Conversely, debt aversion may deter individuals from borrowing for higher education (Eckel et al. 2007; Oosterbeek and van den Broek 2009) and influence participation and college choice (Callender and Jackson 2008; Callender and Mason 2017; Gonzalez 2011).

With parental financial help, they can afford to pay for some or all of their tuition fees and living costs up front and without taking out a student loan

Student characteristics matter when considering loan take-up because of the way societies and cultures shape willingness to borrow. Thus, gender significantly influences financial risk attitudes, with females being more risk averse than are males (Eckel and Grossman 2002; Galizzi et al. 2016). Early evidence about loan take-up in the UK found that females were less likely than males to take out student loans (Johnes 1994; Payne and Callender 1997), which holds for the Netherlands (Oosterbeek and van den Broek 2009). It is, however, no longer the case in more recent English SIESs (Callender and Kemp 2000; Finch et al. 2006; payday loan debt lawyer Apple Valley Johnson et al. 2009; Maher et al. 2018; Pollard et al. 2013). Additionally, values and beliefs tied to culture and ethnicity could either encourage or dissuade students from borrowing (Dohmen et al. 2011; Yao et al. 2005). For instance, Sharia law does not allow Muslims to borrow using financial products that attract interest. Ethnicity used to be associated with lower loan take up among Asian students and those from other ethnic minority groups (Callender and Kemp 2000; Callender and Wilkinson 2003; Finch et al. 2006; Maher et al. 2018; Payne and Callender 1997). However, this was no longer true in the two most recent SIESs (Johnson et al. 2009; Pollard et al. 2013). 2006; Gayle 1996; Johnes 1994; Johnson et al. 2009; Payne and Callender 1997), but not in the latest SIEs (Maher et al. 2018; Pollard et al. 2013). The link between student demographics and loan take-up therefore seems to have eroded over time, as take-up has grown.