Graduates, Dropouts and Slow Finishers: The Effects of Credit Constraints on University Outcomes

Abstract

The effect of credit constraints on the dropout, graduate and slow finishing decisions of university students in Australia is studied. The Australian university system has institutions in place to resolve credit constraint issues, including an income contingent loan scheme and means tested government income support. Our key findings are that the effects of credit constraints vary with high school achievement and that credit constrained students are at greater risk of dropout. We find likely credit constrained students with strong high school achievement are more likely to graduate and less likely to be slow finishers relative to otherwise similar students who are only potentially or unlikely constrained. We also find that dropout is most likely in the first year of study and falls over time for all students. After three years of study, however, the risk of dropout starts to increase for students who are likely constrained. Given the policy settings in place in Australia, the chances of graduation and slow finishing do not vary negatively between students more or less likely to face credit constraints. However, more attention should be directed at the issue of dropouts as students who are likely credit constrained are at least twice as likely to drop out as other students.

Keywords: College Dropouts, Credit Constraints, Completion Times

JEL Classification: I23, I22, J24, H52