The effects of credit rationing on re-enrollment rates at a University in South Africa

Abstract

How important are credit constraints for educational persistence and performance at the university level in South Africa? We use institutional data to measure the impact of credit rationing on re-enrollment rates at the University of Cape Town (UCT). Identifying variation is obtained from a policy change in the eligibility requirements for continued financial aid that occurred in 2015. Our difference-in-differences point estimate is -0.074 and is statistically significant at the 1% level of significance. We also estimate a difference-in-difference-in-differences model to identify whether the policy had heterogenous effects for relatively lower income students who received funding from the National Student Financial Aid Scheme (NSFAS). We find that the policy resulted in a 5.5 percentage point decrease in re-enrollment rates amongst students who were not previously on NSFAS funding, while the corresponding estimate amongst NSFAS students was approximately 13 percentage points. These findings suggest that credit constraints are binding on the decision to re-enroll, but only for a relatively small proportion of the students who were affected by the change in the policy.