The Effect of the Liquidity Constraint on the Accessibility of Higher Education in Israel

The difference in the proportion of students from families with different income levels attending college is due to two factors: the liquidity constraint and the difference deriving from the low returns to education among the poor. We find that grades in the school-leaving matriculation examinations (Bagrut) constitute an unbiased estimate of the returns to higher education for men, and can be used to estimate the extent of the liquidity constraint affecting students from an underprivileged socio-economic background. Among women, on the other hand, we find that the returns to higher education for school-leavers with matriculation from underprivileged families are higher than they are for school leavers with matriculation from better-off families, i.e., the liquidity constraint for women is underestimated. We find that 3.3 percent of male school-leavers and 4.5 percent of female school-leavers, both having matriculated from high school, refrained from going on to higher education because of a liquidity constraint. The existence of a liquidity constraint as regards higher education for both men and women is borne out by the longer time it takes for youngsters from low-income families to graduate from college. Despite the existence of a liquidity constraint we did not find that a reduction in university tuition fees had an effect on the composition of those graduating. In our opinion, this expresses the relatively small reduction in tuition fees (relative to the total cost of studying) as well as the relatively short period of time that has elapsed since tuition fees were reduced and our sample, which prevents us from identifying slight changes in the composition of those graduating from university