New research report looks at student’s willingness to pay and to borrow for PSE - SRDC

New research report looks at student’s willingness to pay and to borrow for PSE

September 28, 2010


A new research report released today by the Social Research and Demonstration Corporation (SRDC) and the Higher Education Quality Council of Ontario (HEQCO) investigates the roles that financial barriers may play in the under-representation of certain groups in post-secondary education (PSE).  It shows that negative perceptions about the costs of PSE and about taking up student loans may discourage some students from pursuing a post-secondary education.

Though PSE attainment rates in Canada are among the world’s highest, its aging population threatens to compromise its ability to meet future demands for skilled workers unless PSE participation rates keep climbing. There is growing consensus that the best opportunity for growth may be to focus on increasing access for groups that are currently under-represented in PSE, such as those from lower-income families, those with no family history of PSE participation and Aboriginal students. Increasing participation among these groups also makes sense from a social justice perspective, as every Canadian should have the same opportunity to pursue higher education.  However, this goal may be difficult to reach in the current climate of rising student fees, living expenses, and debt loads.

The report by SRDC researchers, Boris Palameta and Jean-Pierre Voyer, builds on an experimental approach developed and implemented by CIRANO (Centre interuniversitaire de recherche en analyse des organizations) and SRDC to investigate two types of financial barriers: higher price sensitivity and the prevalence of loan aversion.  This approach involved subjecting students to a series of financial decisions, some of which involved potentially high-stakes choices between various combinations of grants and loans for full-time PSE and significant but smaller amounts of cash. Over 1,200 students from 12 different schools in 4 provinces (Quebec, Ontario, Manitoba, and Saskatchewan) participated.  All were in their final year of high school or first year of CEGEP (collège d’enseignement général et professionnel).

Price sensitivity was investigated by varying the amounts of cash participants had to give up (up to $300) to secure varying amounts of grants (up to $4,000).  It was assumed that choosing a grant was an indicator of demand for PSE while a choice of cash indicated a lack of demand. The results of the experiment showed greater sensitivity to price increases by students from lower-income families, those with less educated parents, Aboriginal students, and boys.

Some of these group differences can be explained by the higher prevalence of certain characteristics among more price-sensitive groups. For example, the greater sensitivity to price increases shown by students with less educated parents was largely attributable to their lower grades, which may have made them more likely to doubt their own motivation and ability to succeed at PSE.  In contrast, grades had very little to do with the greater sensitivity to price increases shown by students from lower-income families.  Instead, differences in price sensitivity can be traced back to higher perceived costs of PSE and identity-related issues.   For other groups, such as Aboriginal students, boys, and those with physical disabilities, significant deficits in demand for grants remain even after characteristics such as grades, perceptions of PSE costs and benefits, parental income and education, and many other potential explanatory factors are accounted for.   The authors suggest that, at a fundamental level, there is some mismatch between the needs of the groups and what the education system has to offer.

The report also shows experimental evidence for loan aversion, a phenomenon that had previously been investigated largely at the anecdotal level.  Loan averse participants were defined as those who are receptive to PSE as indicated by their choice of a grant over cash, but whose demand for PSE wanes with the offer of additional financing in the form of a loan.  Results show that between 10 and 30 per cent of students participating in this experiment displayed some degree of loan aversion. While under-represented groups tended to show a slightly greater likelihood to be loan averse, this behavior was found to be more a function of low numeracy, a tendency to discount future benefits, and doubt about the returns to PSE.   The relatively high prevalence of loan aversion overall suggests that a number of individuals, especially those who have few alternative funding sources other than student loans, may find PSE to be unaffordable and refrain from enrolling.

The report suggests consideration of various possible policy responses.  To address price sensitivity, higher levels of targeted grants could induce more students from lower-income backgrounds and those with less educated parents to take up PSE. As well, gaps in demand for PSE among these groups could be closed further by designing interventions to target perceptions of returns to PSE and to address concerns about identity issues.

In terms of loan aversion, an obvious policy response is to support a wider range of options for students to finance their PSE, for example, cooperative education programs that allow students to earn employment income and academic credit simultaneously. Information and marketing efforts may also dispel misperceptions some students may have about student loans. Consideration could also be given to decoupling grants from the need-base aid application system, whereby a student can only obtain a grant after first applying and qualifying for a loan.

The study was funded by the Canadian Millennium Scholarship Foundation and the Higher Education Quality Council of Ontario.

   Read the full report.
   Read Appendix A–Choices.
   Read Appendix B–Surveys.
   Read the executive summary.


Boris Palameta, senior research associate, SRDC
613-237-2945 / [email protected]

Jean-Pierre Voyer, president, SRDC
613-237-3169 / [email protected]

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