The effect of student loans on college enrollment: Evidence from municipality panel data in Japan

Abstract

This study examines whether the criteria expansion for student loan eligibility promotes the college enrollment of high school graduates in Japan. In 1999, the Japan Student Services Organization revised the eligibility criteria of the student loan system based on household earnings. Before the revision, the maximum allowable earnings for student loan applications differed across regions; some region’s had lower criteria than others. After the revision, the criteria for regions with lower maximum allowable earnings were adjusted upwards to match regions with higher ones. We conducted a difference-in-differences estimation by using municipal panel data from 1998 to 2003. We found that the expansion of eligibility for student loans improved the male college enrollment rate by around 0.5 to 0.7% points, while female enrollment was less sensitive to the expansion of student loan eligibility. The impact of the student loan eligibility expansion is larger for low income areas.