Student Loans: Liquidity Constraint and Higher Education in South Africa

Abstract

Empirical evidence that access to higher education is constrained by credit availability is limited and usually indirect. This paper provides direct evidence by comparing university enrollment rates of potential South African students, depending on whether or not they get a loan to cover their university fees, in a context where such fees are high. We use matched individual data from a credit institution (Eduloan) and from the Department of Education. Using a regression-discontinuity design based on the fact that loans are granted according to a credit score threshold, we can estimate the causal impact of loan obtainment. We find that the credit constraint is substantial, as it reduces the enrollment rate into higher education by more than 20 percentage points in a population of student loan applicants.