Non-take-up of student financial aid

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This paper estimates the percentage of students who forgo their federal need-based student financial aid entitlements and explores the factors influencing this behavior. Despite the availability of extensive financial aid in Germany, educational mobility remains low, making it essential to determine whether students are claiming their aid. To analyze non-take-up, a microsimulation model was developed using data from the German Socio-Economic Panel Study from 2002 to 2013, estimating the aid amounts students would have received if they had applied. Findings reveal that approximately 40% of eligible low-income students do not utilize their entitlements. The study employs instrumental variable techniques and a sample selection model to examine various potential explanatory factors. Results indicate that non-take-up is inversely related to benefit levels, although the elasticity is low. Additionally, a shorter expected duration of benefit receipt correlates with a higher non-take-up rate, while the ability to rely on older siblings’ experiences with the application process increases the likelihood of claiming aid. Notably, students from the former socialist East Germany are more likely to take up aid compared to their West German counterparts. Lastly, in line with behavioral economic theory, debt aversion among impulsive and impatient students is linked to higher non-take-up rates.