This paper studies loan taking behavior of students. A major motivation for having publicly subsidized loans for students is that it would allow higher education students to focus on their studies. However, despite having access to publicly subsidized loans, they are under-utilized and instead students work while studying. We leverage a major reform that introduced a subsidies for student loans including a loan relief scheme for higher education students to study to what extent the loan taking of students respond to financial incentives. We utilize a quasi-experimental design by comparing loan taking behavior of students with that of non-student young individuals. We find a large impact of increased loan taking by students due to the reform. Despite this, the student loans remain under-utilized by students. In progress: working while studying, graduation times and grades.

This paper investigates the determinants of non-take-up for the means-tested federal student aid/ loan combination in Germany using a dataset of 22,000 students collected by the authors in 2023. Using the self-reported parents’ income, we simulated the student aid amounts. A Probit regression on non-take-up shows significant results for age, migratory background, living with parents, and acquaintances receiving BAföG which had the same effect directions but were not all significant in prior studies. Beyond these causes, we show other student grants and debt aversion as significant. For the first time, the central role played by misperceptions of entitlement and aid conditions on non-take-up becomes clear as a majority of non-take-up students do not believe that they are eligible. The main non-take-up reasons reported by this group are application effort and debt aversion, whereby this is possibly driven by their misperception of the repayment.

Welfare programs serve as crucial policy instruments for economic redistribution and poverty alleviation. However, evidence indicates that many eligible families often do not benefit from such programs. In this paper, I investigate take-up behaviors and their implications by leveraging exhaustive social administrative records related to a large French welfare program (“prime d’activité”) and using a recent major reform as quasi-experimental variation. The reform caused a substantial take-up behavioral response, leading half a million of families to start take-up. Using a diff-in-diffs strategy, I estimate a small elasticity of the take-up rate with respect to the benefit amount of about 0.1. I provide evidence that the reform indirectly raised awareness about the program which can explain the bulk of the take-up response. Building on these results, I develop a theoretical framework to derive insights into optimal welfare program design in the presence of endogenous labor supply and take-up decisions.