Abstract:

The authors investigate the occurrence of moral hazard within the subsidised higher education system in Croatia, with particular emphasis on how government subsidies for tuition and student-related costs influence student behaviour.

Authors employed the OLS method on data collected through a survey of Croatian students from University of Rijeka to estimate whether those who are fully or partially exempted from financial obligations exhibit behavioural patterns indicative of moral hazard. In this context, student moral hazard is operationalised as failure to meet academic obligations, measured by the average number of failed courses per academic year.

The model incorporates a range of explanatory variables that are theoretically and empirically linked to undesirable academic behaviour. These include income level, rural–urban background, overall financial situation, engagement in risky financial behaviour, perceived financial support, and financial attitudes. The analysis explores how these factors influence the emergence likelihood of moral hazard, with particular attention to differences between full-time and part-time students. Main difference between the two groups lies in the degree of state support: full-time students benefit from substantial subsidies, while part-time students receive limited or no direct financial relief. The results indicate that group with higher degree of subsidies –full-time students– display a higher propensity toward risk-taking behaviour, reflecting their stronger reliance on state-funded support.

Beyond individual behavioural outcomes, the study also considers the economic implications of post-graduation attrition, specifically the migration of graduates away from the subsidising state. Such outward mobility reduces the long-term returns on public investment in higher education. Overall, the findings provide valuable insights for policymakers seeking to optimise the design of higher education subsidies, minimise moral hazard, and enhance the long-term sustainability of public support systems for both individuals and society.

Keywords:

Financing, Moral Hazard, Higher Education, Students, Behavioral Finance.