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Title: Family Wealth and College Attendance: Borrowing Constraints or Scholastic Ability?
Resulting in 1 citation.
1. Kim, Minseop
Byrne, Thomas
Jung, Nahri
Family Wealth and College Attendance: Borrowing Constraints or Scholastic Ability?
Presented: Washington DC, Society for Social Work and Research Conference, January 2012:
Cohort(s): NLSY97
Publisher: Society for Social Work and Research (SSWR)
Keyword(s): Assets; Cognitive Development; College Education; Debt/Borrowing; Family Income; Test Scores/Test theory/IRT; Wealth

Permission to reprint the abstract has not been received from the publisher.

Background and Purpose: This study aims to examine how various forms of family wealth affect college attendance. Family wealth may have an effect on educational attainment over and above the effect of family income that may play a pivotal role in children's future socio-economic status. In light of this, a handful of studies have recently examined the extent to which various forms of wealth (e.g. liquid assets, illiquid assets, and debt) affects post-secondary educational outcomes including college attendance and completion. However, the underlying mechanism that accounts for the relationship still remains unclear. While the borrowing constraint hypothesis considers lack of economic resources to finance college education as a major barrier to college attendance, the ability hypothesis posits that family wealth affects college attendance as it is a crucial determinant of the ability of children to obtain post-secondary education. In other words, whereas the former focuses more on a direct financial effect, the latter emphasizes an indirect effect of family wealth through its impact on the scholastic ability of children. To test these two hypotheses, this study empirically examines a path model in which three forms of family wealth (liquid assets, illiquid assets, and debt) are assumed to have a direct effect on college attendance, and an indirect effect via SAT performance, which is one of the most important criteria in college admission.

Method: We utilize the National Longitudinal Survey of Youth 1997 (NLSY97), which is the only national dataset that provides detailed reliable information on family wealth, SAT score, and college attendance. The study sample drawn from the NLSY97 consists of children who reported that they had taken the SAT between 1996 and 2003 (N=3,216). We construct wealth variables measuring illiquid assets, liquid assets, and debt. For statistical analysis, we use structural equation modeling (SEM) with SAT scores (verbal and math) serving as indicators of scholastic ability. SEM enables us to simultaneously estimate both direct and indirect effects on college attendance. Results: The SEM results support the ability hypothesis rather than the borrowing constraints hypothesis. Although, as expected, the liquid and illiquid assets have a positive effect, the direct effects are not significant. On the other hand, a family wealth measure, liquid assets shows a meaningful, indirect effect on college attendance through SAT (Odds ratio: 1.014, p<.05). Finally, although it is not of primary interest, family income, a traditional way to measure economic resources, is found to have a direct effect on college attendance (Odds ratio: 1.074, p<.05).

Conclusions and implications: This study suggests that family wealth, especially liquid assets which are easily convertible, is important for children's cognitive development, which is a strong predictor of post-secondary education. This finding suggests that it is important to enhance programs designed to encourage poor families to accumulate assets to promote educational achievement of their children. It should also be noted that given the observed direct effect of family income on college attendance, this study does not contradict current policy which helps youth from lower income families finance post-secondary education through borrowing.

Bibliography Citation
Kim, Minseop, Thomas Byrne and Nahri Jung. "Family Wealth and College Attendance: Borrowing Constraints or Scholastic Ability?." Presented: Washington DC, Society for Social Work and Research Conference, January 2012:.