6. Ethnicity and religion: Students of Indian origin are 11.7 percentage points less likely to take out maintenance loans compared with otherwise similar students from other ethnic groups. Muslim students are 9.7 percent less likely to take out both tuition fee and maintenance loans. These effects are much smaller and insignificant when accounting for living at home.
Understanding who does and does not take out student loans is important because those who manage to study without borrowing enjoy significant advantages both during and after their studies. The financial advantages might spill over to academic achievements and to post-graduation choices and opportunities (e.g. career choices, housing, health…).
But, family wealth remains a significant factor in determining take-up, potentially creating inequalities and social mobility issues. Similarly, gender, ethnicity and religion might impede educational achievements for those deterred by debt. Finally, the role of parental education and living at home in encouraging or inhibiting geographic mobility for higher education might also influence social mobility.
The findings highlight a personal payday loans Hagerstown IN contradiction between the increased popularity of student loans globally and rising concerns in many countries about equity in higher education. Whether student loans and equity can coexist is yet to be determined.
The research was conducted with the support of the Economic and Social Research Council, the Office for Students and Research England (grant reference ES/M010082/1. We also acknowledge UCL and UK Data Service for providing access to the following dataset: University College London, UCL Institute of Education, Centre for Longitudinal Studies. (2018). Next Steps: Sweeps 1-8, 2004-2016. [data collection]. 14th Edition. UK Data Service. SN: 5545,
2. Parents’ level of education: Students whose parents have a first degree or higher are, ceteris paribus, 4.0 percentage points more likely to take out a maintenance loan.
Knowing who opts not to take out loans is important because these students are at a significant advantage, both during and after their studies. This could have long-term repercussions for social mobility, especially if those not borrowing already come from advantaged backgrounds. For instance, student loans are positively associated with drop-out and negatively associated with graduation (Baker et al. 2017). Consequently, those without student loans might have higher chances of graduating and of enjoying the lifelong private benefits associated with gaining a first degree (Brennan et al. 2013). Beyond academic success, the privileges of those not taking out student loans extend to post-graduation outcomes too. The overhanging debt creates a huge financial gap between debtors and non-debtors. Moreover, as research on the long-term consequences of student loan debt shows, having student loan debt can limit or constrain graduates’ decisions and choices about their employment and careers, postgraduate studies, home ownership, family formation, health, savings for retirement, and financial wellbeing (de Gayardon et al. 2018). The implications of the simple question of who borrows’ are, therefore, significant both in the short and long term.
Students start repaying their maintenance and tuition fee loans in the April after they graduate or leave higher education. They pay 9% of their income above an income threshold which has changed over time (Murphy et al. 2018). Repayments are taken directly from the graduate’s salary through the tax system. Repayment stops when the full loan balance has been repaid or after 25 years, when any outstanding debt is forgiven (Belfield et al. 2017a). This system effectively protects the borrower from default and controls their repayment burden. Up until , the interest paid was equal to inflation (Retail Price Index) or the Bank of England base rate plus 1%, whichever was lower-in effect, a zero real interest rate.
There are a number of limitations to these studies on student loan take-up, which we attempt to address. Only one of the above studies analyses maintenance and tuition fees separately, and none gives a good indication of the importance of different indicators of wealth for loan take-up. Nor do any studies examine the relationship between debt aversion and loan take-up. Moreover, all the studies of the UK loan system since 1997 rely on just one dataset, the SIES. By using a different data source, Next Steps, we can check whether the earlier findings on student loan determinants are replicable and robust. Specifically, we examine the following questions:
Our demographic data include gender, ethnicity and religion (which we categorise as Muslim or other). The data also include six debt attitude statements that were proposed to respondents in waves 4 to 6. They are graded from 0 to 4, with answers ranging from strongly agree to strongly disagree. These answers are added to create a debt aversion index, available in the dataset, ranging from 0 to 24, with lower scores indicating higher debt aversion. We use the index from wave 4, prior to entering higher education, except for those missing at wave 4, when we use the index from wave 5.
The models also include demographic characteristics. They show the effects of gender, ethnicity and religion on the probability of taking out student loans. Gender is particularly interesting, although the effect is modest. Women have probabilities of taking out student loans that are 2.5 percentage points lower than those of men, all else being equal. Ethnicity makes little difference except for students of Bangladeshi origin, who are more likely to borrow than White students, and students of Indian heritage who are less likely to borrow than White students. The effect of religion is as expected and quite substantial, with Muslim students being more reluctant to take out student loans. Column 2 shows that a Muslim student, on average, is 10.9 percentage points less likely to borrow than is a similar student with no religion. However, this is no longer true when debt avoidance mechanisms are added. This could imply that Muslim students are more likely to adopt debt avoidance mechanisms like working during term-time and living at home for cultural reasons and/or to avoid borrowing, which is forbidden by Sharia law.
Columns 2 and 3 of both panels show that debt attitudes are an important predictor of the probability of taking out both types of loans, although effect sizes are slightly larger for maintenance loans. Finally, column 3 provides insights into the role played by debt avoidance mechanisms, some of which have already been discussed. The probabilities of borrowing for both tuition fees and maintenance are lower when the student lives at home, but the effect size is much larger for maintenance loans. While working during term-time does not relate to maintenance loan take-up, it is related to an increase in the probability of taking out tuition fee loans, maybe indicating a reverse relationship where the need to work stems from the accumulation of high tuition fee loans.
Thirdly, unlike previous studies, ours finds a role for gender, with female students 2.5 percentage points less likely to take loans. This small effect could be in part attributable to women having higher debt aversion as suggested by Bates et al. (2009). Other research shows that female students’ attitude towards debt changed significantly between 2002 and 2015 (Callender and Mason 2017).