The effects of the student loan system: fat salaries or the pursuit of happiness?

Erasmus School of Economics

In an article from De Volkskrant, Associate Professor of Applied Economics at Erasmus School of Economics Bas Karreman, appeared to discuss the outcome of a study he performed regarding students’ study choices before and after the abolition of the Dutch basic grant system, which was replaced by the student loan system.

In 2015, the Dutch government made the considerable decision to abolish a system that had been in place for almost 30 years: the basic grant system. It was put in place in order to help young people study and to reduce their dependency on their parents. The replacement of the basic grant system, the student loan system, has been controversial since its implementation. From 2015 to 2019, the average student debt increased significantly from 12,400 to 13,900 euros. The implementation gave rise to the question whether students would reconsider their intentions of studying. Wouldn’t the increased debt make the pursuit of an academic degree something for the privileged in our society?

Quantitative analysis

Karreman teamed up with Zhiling Wang, Associate Professors Applied Economics at Erasmus School of Economics, and Frank van Oort, Professor of Applied Economics at Erasmus School of Economics to research the effects of the student loan system on students’ study choices. They found that several factors contribute to one’s study choices. Karreman explains that the socio-economic background of a student might impact his or her study choice: ‘When your parents aren’t as rich, they are not able to give as much financial support, which leads to you having to borrow more money’.

The data indicates that since the implementation of the student loan system, more secondary school students tend to choose education programmes that promise a higher starting salary. However, some students are influenced more than others. Factors that implicate higher debts lead to the choosing of a study with a higher starting salary. As an example, students who have to go live on their own in order to attend university expect higher debts. Another factor is academic performance: if a student expects to need more time to attain a degree, debts will likely be higher. Because these students make a cost-benefit analysis before they attend university, they anticipate the higher debt by choosing a study programme with a higher starting salary, according to Karreman. However, the analysis indicates that these changes in behaviour only occur amongst secondary school pupils who attend HAVO. One of the possible explanations is that pupils attending vwo expect a higher starting salary, regardless of their study choices.

Cluster shifts

Do we have to worry that there won’t be any people attending drama school or art academies? The answer is no: the majority of shifts occur within clusters. For instance, someone who would have chosen for a nursing education in the first place, will now choose to do a lab study. The starting salary of a lab study is higher, but still in the same cluster: healthcare.

Associate professor
More information

You can read the article from De Volkskrant, 10 November 2020, here.

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