Canada Student Loans Directorate Applied Research Branch Human Resources Development Canada

1. Fostering Adult Education:A Laboratory Experiment on the efficient use of loans, grants and savings incentivesApril 2002 – June 2002 Canada Student Loans Directorate Applied Research Branch Human Resources Development Canada

2. Fostering Adult Education:A Laboratory Experiment on the efficient use of loans, grants and savings incentivesApril 2002 – June 2002 Cathleen Johnson CIRANO Claude Montmarquette University of Montreal and CIRANO  Catherine Eckel University of Texas at Dallas

3. Overall project: Using experiments to calibrate policy This project was designed to address a particular set of specific policy issues for Canada Student Loans: • What will be the participation rates for various types of subsidy? • What are displacement or windfall gain effects? • What are the “barriers” to education? • Can information about the labor market improve decision making about post-secondary education? Premise: The effectiveness of a policy can be enhanced substantially if it is tailored to the preferences of the target population • Allows fine tuning of policy parameters • Allows estimation of take-up rate • Ex: Poor Savings

4. The Experiment(lab experiment with nonstandard subject pool) Focus of the full study is on four sets of measures: 1. Preference measures • consumption over time • risky choice alternatives 2. Survey measures: demographics and attitudes 3. Numeracy 4. Willingness to invest in post-secondary eduation • Grants • Loans (regular and income-sensitive repayment – ISR) • Matched-savings grants

5. Protocol • $20 Show-up fee • Practice Choice Questions • Bingo balls used for random draw process • Dice were used for gambles • As individuals finished they left the room and were paid privately for one decision

6. Participants

7. Preference Measures: Risk aversion • Measured using simple task • Ss choose which among 6 50/50 gambles that they wish to play

10. Histogram of risk decisions

11. Decision Choice A • $120.00 for sure Choice B • 80% chance for $175 and 20% chance for $0

12. Preference Measures: Patience • Ss choose among amounts of money at an earlier time and larger amounts at a later time. • Choices vary in terms of • rates of return • wait times • Front-end-delay

13. Summary of Time Preference Choices

14. Patient Choices: One month FED, 1 year wait

15. Survey measures • Demographics • Age, gender, income • Labor market and educational status • Attitudinal measures • Planning, debt • Barriers to education • Skills, dispositional, situational

16. Cash v. Investment Choice • Cash alternative made the choice of investment costly to the subject • Results used to calculate elasticities of demand for education with different types of subsidy • Determine relative preference for education for each participant

18. Takeup Rates for $1,000 in Educational Financing

19. Analysis - Education Preference Overall intensity of preference for education experimental estimates: None, some, moderate, strong, very strong preference for education (D75-D78) Is a function of Individual Characteristics

20. Determinants of Choosing $1000 Part-time Grant Over Cash • Labour Force attachment • Immigrants, disabled • Willingness to save (decision) • Positive attitude with respect to Education and LM • Mathematical Competency • PSE experience Ordered Probit, 801 observations)

21. Determinants of Choosing $1000 Part-time Grant Over Cash • Age • Employee with education supplement • married • Children (older) • HS equivalency (Ordered Probit, 80 observations)

22. Probabilities of Investing in Education

23. Probabilities of Investing in Education

24. Determinants of Choosing $1000Part-time Grant Over Cash for High School Students (Ordered Probit, 80 observations) • Willingness to save ($$ Decision) • Plan for future (Temporal orientation scale) • Positive attitude with respect to Education and LM • Burdened by debt

25. Probabilities of Investing in Education – High School Students

26. Probabilities of Investing in Education – High School Students

27. Proportion of urban participants that chose education financing over $100 cash

28. Labour Force attachment Immigrants, disabled Willingness to save (decision) Positive attitude with respect to Education and LM Mathematical Competency PSE experience Age Employee with education supplement married Children (older) HS equivalency Determinants of choosing $1000 Grant Over Cash (Ordered Probit, 801 observations)

29. Factors related to positive attitude towards LM • Employer subsidy, Age, Men • Good math competency (not the best!) • Family history of saving for EDU • Attitude: LOC, temporal orientation • High market understanding • High school equivalency • Student debt

32. Determinants of choosing more education after the LMI session

33. Determinants of choosing more education after the LMI session Probability of taking choosing more education for the young participants goes up by 15% • From 42% to 57%

34. What have we learned so far? • Individual characteristics, such as time preference and risk preferences, can explain variability in the decision making process as much as demographic and social characteristics. • Overall, participants were sensitive different levels of incentives and different forms of financing • LMI interventions can make a difference • Study directly impacted Provincial Loan Programs

35. The Next Steps • How does information influence knowledge and attitudes? • What influence did ability play in the change of attitude? • There is the problem of potential selection bias in the choice of the sub sample of individuals to participate in the LMI intervention. By focusing on those with poor initial information of the labour market, did we undermine the effect of the LMI intervention?