The Role of Credit Constraints in Educational Choices

1. The Role of Credit Constraints in Educational Choices Evidence from two British cohorts Lorraine Dearden, Leslie McGranahan and Barbara Sianesi IFS

2. Research questions • Extent to which short-term ‘credit constraints’ affect individual educational choices • Staying on in FT education past 16 • Completing HE • Has this changed over time? • 1958 cohort (NCDS) • 1970 cohort (BCS)

3. Who stays on in school? Females Males Proportion staying on by parental income quartiles – BCS70

4. Who completes HE? Females Males Proportion achieving HE by parental income quartiles – BCS70

5. Is this evidence of credit constraints? Family Income Education

6. Is this evidence of credit constraints? Credit Constraints Family Income Education

7. Is this evidence of credit constraints? Credit Constraints Family Income Education Cognitive ability Non-cognitive ability Expectations Tastes … • Early + • long-term factors • Family inputs • Environmental inputs

8. Is this evidence of credit constraints? • Observed correlation between family income and educational outcomes could be due to: • short-run credit constraints • long-run family background and environmental effects correlated with family income and educational outcomes • Our aim is to single out a)

9. How do we do this? • Apply methodology of Carneiro and Heckman (2003) to the UK • To estimate the share of individuals affected by short-term ‘credit constraints’

10. Operational definition of ‘credit constrained’ • Individuals from the top quartile of the income. distribution are not, by assumption, credit constrained • All others are potentially credit constrained. • Share who is credit constrained = Any residual gap in educational attainment between top income children and all other children with the same ability and the same early family and environmental factors • NB: if we don’t manage to capture all family effects, estimates will be an upper bound.

11. Approach • Split family income at 16 into quartiles • Split ability at 10/11 into tertiles • math, verbal and non-cognitive measures • Within each ability group work out the proportion of ‘credit constrained’ individuals after controlling for long-run family background characteristics: • mother’s and father’s education, family size and structure, father’s social status at 16, race and region of residence at 16

12. Results: Staying On – BCS

13. Results: Staying On – BCS

14. Males Stay On Rates: Males – BCS70

15. Results: Staying On – BCS

16. Results: Staying On – BCS

17. Results: Staying On – BCS

18. Females Stay On Rates: Females – BCS70

19. Results: Staying On – BCS

20. Results: Staying On – NCDS

21. Results: Staying On – NCDS

22. Males Stay On Rates: Males – NCDS

23. Results: Staying On – NCDS

24. Results: Staying On – NCDS

25. Results: Staying On – NCDS

26. Females Stay On Rates: Females – NCDS

27. Results: Staying On – NCDS

28. HE Completion • Target groups: • HE vs Anything Less • HE vs at least Level 2 • key marginal group who could access / would benefit from HE • Attainment • Credit constraints might affect dropping out

29. Summary (stat. significant gaps - pp)

30. Conclusions • Short term ‘credit constraints’ have more impact on staying-on decisions for our younger cohort • Is 6-7% a large fraction? • Upper bound • Conceptual policy experiment • But: emerged between the two cohorts • Less evidence of effect on HE completion • ‘Convergence’ for males and females to 2-3% • Reduced for females • Emerged for males • Policies earlier on may be well placed.