HOW DO EXPECTATIONS AFFECT STUDENTS’ CHOICE OF HIGHER EDUCATION INSTITUTIONS?

Responsible researcher: Bruno Benevit

Original title: University Choice: The Role of Expected Earnings, Non-pecuniary Outcomes and Financial Constraints

Authors: Adeline Delavande and Basit Zafar

Intervention Location: Pakistan

Sample Size: 2149 students

Sector: Education

Variable of Main Interest: Choice of educational institution

Type of Intervention: Perception about universities

Methodology: GMM

Summary

At the end of secondary education, young people are faced with several higher education options. This choice is related to the course and the educational institution, and can be affected both by market expectations and restrictions and by non-pecuniary aspects. This article investigated what determinants affect students' choice of higher education institution in Pakistan, looking at factors such as monetary returns, non-pecuniary returns associated with universities, and financial constraints. Using a school choice model, the estimates found from the Generalized Method of Moments (GMM) indicated that non-pecuniary factors, such as the ideology of the educational institution, are the main determinants for these choices. Labor market prospects played a significant, but not very relevant, role.

1. Policy Problem

Choosing a higher education institution is a crucial stage in an individual's career, potentially influenced by several factors. Each student faces a unique and highly personalized decision when choosing the higher education institution that best suits their needs and educational goals.

In addition to future earnings expectations, which are often taken into account based on salary projections and job opportunities associated with different programs and universities, there are significant subjective factors that play a crucial role (Eisenhauer, Heckman, and Mosso, 2015). Factors such as affinity with the institution's culture and values, geographic location, quality of teaching staff, and availability of specific academic resources can influence this decision (Delavande and Zafar, 2019). In this sense, each student considers a unique combination of objective and subjective factors to find the institution that best aligns with their academic and personal aspirations.

2. Policy Implementation Context

Higher education Pakistan is home to a wide range of institutions, showing similarities with the rest of South Asia. The types of institutions range from public and private universities to madrasas, Islamic religious schools commonly found in the region. Both public and private universities have their own entrance exams, similar to those carried out in the United States and Brazil. Additionally, universities also carry out admission processes based on secondary education exams and/or interviews.

The quality of higher education in the country varies widely, with some institutions being internationally renowned while others face infrastructure and governance challenges. In this sense, private universities stand out, adopting a Western teaching style and offering the best job market returns, but resulting in high costs for students. Madrassas are at the other pole, generally offering their services free of charge. With intermediate performance are Islamic universities, which tend to be public and accessible to poorer sections of the population. Despite the variety of options, the enrollment rate for Pakistani students aged 17 to 23 was 5.1% in 2011 (Delavande and Zafar, 2019).

3. Assessment Details

To collect data regarding students' expectations from educational institutions, this study conducted a questionnaire among college-age male students enrolled in different colleges in two urban centers in Pakistan. The five universities presented in the questionnaire represented the diversity of higher education institutions in Pakistan, divided into: (i) Very Restricted University (UMR), (ii) Restricted University (UR), (iii) Islamic University (UI), (iv ) Madrassa in city 1 (M1), and Madrassa in city 2 (M2).

This questionnaire was designed with the aim of understanding students' preferences in relation to choosing universities. Students were presented with a hypothetical higher education institution selection scenario and asked to rank five existing universities in terms of enrollment preference. These choices were made under two distinct conditions: the first considering the student's current financial situation (declared under financial restrictions), and the second disregarding the costs of higher education institutions (declared without financial restrictions). This approach made it possible to isolate student preferences at the time of the survey, free from external influences such as financial restrictions or other factors.

The survey also collected data on students' beliefs regarding various academic and job market outcomes, providing information on students' perceptions regarding the returns associated with different educational institutions (in relation to the student themselves and the general population). . Additionally, the questionnaire also verified students' perceptions related to parental acceptance, chance of dropping out, ideological alignment, quality of teaching and monthly costs of a given educational institution.

4. Method

This study was based on a school choice model developed by the authors, considering the parameters of the students' utility function, such as consumption, ideological alignment, costs associated with courses, costs of (possible) changing the city of the higher education institution, school-specific factors and the probabilities of graduating and dropping out. Informational shocks subsequent to entering the course also affect the probability of dropping out. Additionally, the model also considers the probability of getting a job in both scenarios of completing or not completing the course and its effects on students' subjective expectations regarding their future income (at 30 years of age).

To estimate the structural parameters that affect Pakistani students' choice of higher education institution, the Generalized Method of Moments (GMM) procedure was adopted. Specifically, the GMM considered the joint estimation of two regressions: (i) a multinomial logit regression to identify the probability of choosing a given institution and (ii) a fractional logit regression to identify the probability of dropping out of a given institution. The authors verified validity by observing the difference in results between subsamples of students in the first year and in later years.

The subjective approval of students' parents by higher education institutions was verified considering costs, family income, type of institution (Madrassa or not), distance from home, students' degree of religiosity, and expectations about return in the future. job market provided by the course.

The authors conducted linear regressions to estimate expectations regarding employability (conditional on being a graduate and/or non-graduate), pecuniary returns (conditional on being a graduate and/or non-graduate), degree level, and ideological alignment. The models considered fixed effects of the current educational institution, fixed effects of the educational institutions judged in the questionnaire, and the student's age.

Finally, the study presented several estimates on the impact of three policy simulations: (i) reduction of financial restrictions, (ii) availability of information regarding the returns of each type of higher education institution, and (iii) ideological homogenization of educational institutions.

5. Main Results

The estimates found indicated a strong variation in students' beliefs about the outcomes considered between various educational institutions, along with a significant diversity in beliefs among individuals within each educational institution. The subjective beliefs data offered a coherent representation of this situation, in that the expectations regarding their income at age 30 conditioned on institutions were coherent compared to the patterns observed in the real data.

Furthermore, the results indicated that students tend to choose higher education institutions based on non-pecuniary results, such as parental approval and graduation position, implying a higher valuation for the institutions in which they were enrolled at the time. Similarly, average beliefs related to withdrawal tended to be lower for the institution where students were enrolled at that time.

Regarding the policy simulations, the results revealed that reducing financial constraints, through offering loans or free education, could have benefited approximately 60% of students in the sample, and that almost 20% would have chosen a higher education institution different. Such results suggest that financial constraints play a significant role in university choice in Pakistan, where efficient credit markets are scarce (Delavande and Zafar, 2019). Regarding the other two simulated policies, the results highlighted the relevance of non-financial factors and the diversity of student preferences in relation to the specific ideology of each institution: any policy that had led to the standardization of institutions in terms of teaching would have had little impact. significant impact on enrollment choices, however, would have resulted in well-being losses for a third of students.

6. Public Policy Lessons

This paper investigated the role of financial constraints, expected monetary returns and non-pecuniary factors associated with higher education institutions in the higher education institution selection process of students in Pakistan. With this aim, the authors explored the context of higher education in the country, which presents great ideological heterogeneity between its conventional universities and madrasas.

The study's evidence demonstrated that financial constraints are important in determining students' choice of university, being strongly influenced by parental approval and subsidy. In this sense, subsidy policies focused on mitigating these restrictions have the potential to increase the enrollment rate of students in universities with high costs, increasing income and substantially increasing the usefulness of benefited students throughout their lives.

References

DELAVANDE, A.; ZAFAR, B. University Choice: The Role of Expected Earnings, Nonpecuniary Outcomes, and Financial Constraints. Journal of Political Economy , vol. 127, no. 5, p. 2343–2393, Oct. 2019.

EISENHAUER, P.; HECKMAN, JJ; MOSSO, S. Estimation of Dynamic Discrete Choice Models by Maximum Likelihood and the Simulated Method of Moments. International Economic Review , vol. 56, n. 2, p. 331–357, May 2015.