The impact of income-contingent provisions on students' loan-taking behaviour

Purpose - This paper aims to investigate the determinants of taking out government-funded student loans for university study in Australia. Design/methodology/approach - The paper uses an ordered probit model to quantify the influence of the various factors which affect students' decisions on funding their tertiary study using student loans or through other means. Findings - The study finds that the probability of taking out student loans for the full cost of university is largely influenced by students' socioeconomic status. Other major influences on this decision include students' demographic and university enrolment characteristics. Research limitations/implications - A limitation of the work is that only a neighbourhood (rather than an individual-level) measure of socioeconomic status was available, and future research should seek to address this. Practical implications - The research shows that the parameters of loan schemes do not seem to be able to over-ride the influence that family background has on loan taking behaviour. That is, poor students use loans regardless of the parameters of the loans scheme in order to overcome short-term credit constraints. In other words, these student loan schemes channel funds to those without other means of funding their higher education. Originality/value - By showing the impact that income contingent provisions have on loan taking behaviour, the paper informs policy makers of potential impacts from modifying loans schemes to reflect this characteristic.