Higher education decisions in Peru: On the role of financial constraints, skills, and family background

This paper analyzes the relative importance of short term financial constraints vis a vis skills and other background factors affecting schooling decisions when explaining access to higher education in Peru. We focus on college access disparities between rich and poor households. We use a novel household survey that includes special tests to measure cognitive and non-cognitive skills of the urban population age 14-50. These are complemented with retrospective data on basic education and family socioeconomic conditions in a multinomial model. We find that strong correlation between college enrollment and family income in urban Peru is not only driven by credit constraints, but also by poor college readiness in terms of cognitive skills and by poor family and educational backgrounds affecting preferences for schooling. Family income explains, at most, half of the college access gap between poor and non-poor households. The other half is related to differences in parental education, educational background and cognitive skills. Our results indicate that credit and/or scholarship schemes alone will not suffice to change the regressive nature of higher education enrollment in Peru, and that such programs will face strong equity-efficiency trade-offs.