Student Aid, Repayment Obligations and Enrolment in Higher Education in Germany – Evidence from a “Natural Experiment”

We evaluate the effect of the German Federal Educational Assistance Act (BAfoeG) on enrolment rates in higher education by exploiting the exogenous variation introduced through a discrete shift in the repayment regulations. While up to 1990, students receiving assistance had to repay their loans in full, since the BAfoeG reform, 50 percent thereof has been offered as a non-repayable grant. Our results from simple difference-in-difference estimates suggest that student aid is ineffective in raising enrolment rates. Our findings may have important implications for the current debate on the reform of financing higher education in Germany and elsewhere.