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In this paper, we examine the relationship between household wealth and
higher education enrolment, with a focus on the evidence surrounding credit
constraints in postsecondary education. Using unique longitudinal data that link
household wealth and measures of cognitive ability at age 12 to higher educa-
tion attendance at age 19–22, we differentiate short‐term credit constraints from
long‐term credit constraints and test the relative importance of short‐ and long‐
term credit constraints in schooling decisions. We find that short‐ and long‐term
credit constraints determine the relationship between household wealth and
higher education attendance. There is a need to complement short‐term policies
with long‐term interventions that empower households to continue to invest in
human capital development over the child's life cycle, which will crystallize in
higher cognitive ability and readiness for higher education.
