partly correct for this insurance market imperfection by offering student loans with income-contingent repayment arrangements. A successful example of such a loan scheme is the Australian Higher Education Contribution Scheme (HECS), see Chapman (1997), Chapman and Ryan (2003), and CPB and CHEPS (2001).

These notions of market imperfections prevalent in the higher education sector and suitable government actions to restore efficiency and provide equal opportunities are important additions to the human capital model. Our main interest in this paper is to analyze the impact of student loans on access to higher education, bearing in mind that credit market imperfections could erect serious barriers to university entrance in Mexico. A second objective of this study is to investigate the effects of the loan program on student behavior. While there is a large literature on the first topic, only few studies on the second question are available (e.g. Turner (2003), Stinebrickner and Stinebrickner (2003), Bettinger (2004), Belot et al. (2004)). This is strange, as the actual creation of human capital within universities will be intimately intertwined with the behavior of students. An important question is for instance how students allocate their time between leisure, study, and part-time jobs. If students face financing problems, they might be forced to earn additional income from jobs on the side. Labor time could compete with study time, so these jobs on the side could have an adverse effect on student performance. This in turn is likely to increase the time-to-graduate, which is costly to the student (even when taking into account that jobs on the side reduce the opportunity cost of education) and also for society (as the supply of skilled people is effectively reduced). The relationship between financial support and the behavior of students in terms of performance, part-time employment, and career choice will be empirically investigated in this paper.

# **3. Institutional Setting**

Before turning to the SOFES loan program in more detail, let us first briefly describe the Mexican higher education sector. In 2000, almost two million students were enrolled in higher education. The enrollment rate in tertiary institutions is 21% in 2000/2001 (data from UNESCO; that defines enrollment rates as a percentage of the 5-year age cohort following on from the upper secondary-school leaving age).<sup>3</sup> Educational attainment shows an upward trend in Mexico. The relative supply of skilled workers with higher education was about 40% higher in 1999 than in 1987 (cf. De Ferranti et al., 2002).

Estimates of the (annualized) private return to higher education in Mexico ranges from 13% (De Ferranti et al., 2002) to 24% (Chapman 2003b). The relative wages of workers with tertiary education increased substantially over the past 15 years in Mexico, as well as in most other Latin American countries (De Ferranti et al., 2002). In combination with the observation that the relative supply of high-skilled workers has also increased, this points to the emergence of skill-biased technological change possibly related to increased

> 3 This is lower than in Argentina (48% in 1999/2000), Bolivia (36%), Chile (38%), Colombia (23%), Uruguay (36%), and Venezuela (29%), but higher than in Brazil with a tertiary enrollment rate of only 17%.

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