Andrés García, Head of the School of Industrial Engineering at Universidad de los Andes, co-authored a new study with Pinjas Albagli, PhD Candidate in Economics at the London School of Economics and Political Science (LSE) and affiliate of the Centre for Economic Performance (CEP). The research, recently published in the Economics of Education Review, examines how Chile’s 2012 student loan reform influenced students’ educational choices.
The policy, which reduced interest rates from 6% to 2% and introduced more flexible repayment conditions, sought to make higher education more affordable. Using detailed administrative data, the authors analyzed how these changes affected enrollment patterns across universities and vocational institutions.
Rather than increasing overall participation in higher education, the reform appears to have shifted students’ preferences, with more choosing university programs and fewer opting for vocational tracks. The study reveals that many students who would previously have chosen technical or vocational education shifted their preference toward university programs. This suggests that the reform did not expand overall access to higher education but instead prompted a substitution within the system.
The study also uncovers notable differences between student groups. “These effects were much more pronounced among students from voucher schools, with virtually no impact for students from public schools,” García notes. “This shows how student loan policies can have very different consequences depending on students’ educational and socioeconomic background.”
The authors interpret these results as evidence that, for some students, the main barrier was not access to higher education itself, but the type of institution they could afford to attend. “By lowering the cost of borrowing, some saw university education as attainable instead of technical programs,” says García. “However, total enrollment did not increase possibly because the rate reduction was not large enough to expand coverage, or because the higher education system is reaching a natural ceiling in terms of participation.”
The findings carry important implications for the design of more equitable higher education financing policies. “Improving loan conditions or creating new financial instruments can encourage access, but policymakers must consider how students respond differently depending on their socioeconomic situation and the kind of institutions they attend,” García reflects. He adds that the reform’s limited impact among disadvantaged students suggests that broader financial and academic barriers persist: “These students still face additional costs that loans don’t cover, and often struggle with academic challenges that restrict their access to credit. We also observed a slight decline in female enrollment, which could reflect greater risk aversion and uncertainty, adding a new dimension of gender inequity.”
García emphasizes that these lessons are highly relevant to current policy debates in Chile, particularly the proposal for a new Public Higher Education Financing Fund (FES) that aims to replace the CAE loan system. “Our results are especially relevant for the ongoing discussion around the FES, which seems to overlook the potential distortions such schemes can generate in access and persistence in higher education,” he cautions.
Looking ahead, the researchers plan to explore several new lines of inquiry. They aim to analyze the long-term consequences of the reform, such as whether changes in the type of institution attended have implications for graduation rates, student debt, or labor market outcomes. Their future work also seeks to understand how higher education institutions adapt to these types of policy changes and to evaluate how new financing mechanisms—like the proposed Public Higher Education Financing Fund (FES)—could balance fiscal sustainability, institutional autonomy, and equitable access to higher education.
