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Educational Debt Burden and Career Choice: Evidence from a Financial Aid Experiment at NYU Law School

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  • Erica Field
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    Abstract

    This paper examines the influence of educational debt aversion on the career choice of law school students, including the decision to attend law school and the decision to work in public interest law. To isolate the role of debt aversion, I analyze experimental data from NYU Law School%u2019s Innovative Financial Aid Study in which two career-contingent financial aid packages were randomly assigned to participating admits. Because the packages had equivalent monetary value and differed only in the duration of indebtedness, differences in career choices associated with financial aid assignment can be attributed to psychological debt aversion. The results indicate that debt aversion matters: In classes for which the lottery was announced prior to enrollment, participants randomly assigned to the low-debt package are nearly twice as likely to enroll. In classes without selective matriculation, lottery winners have a 36-45% higher rate of first job placement in public interest law. Both results are consistent with a simple model of debt aversion in which psychic costs of holding debt during and after school generate differences in the discounted lifetime utility of the financial aid packages and, hence, in the value of attending law school and of working in public interest law.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12282.

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    Date of creation: Jun 2006
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    Publication status: published as Erica Field, 2009. "Educational Debt Burden and Career Choice: Evidence from a Financial Aid Experiment at NYU Law School," American Economic Journal: Applied Economics, American Economic Association, vol. 1(1), pages 1-21, January.
    Handle: RePEc:nbr:nberwo:12282

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    1. Nicholas Barr, 2004. "Higher education funding," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 288, London School of Economics and Political Science, LSE Library.
    2. Cecilia Elena Rouse, 1998. "Private School Vouchers And Student Achievement: An Evaluation Of The Milwaukee Parental Choice Program," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(2), pages 553-602, May.
    3. Drazen Prelec & George Loewenstein, 1998. "The Red and the Black: Mental Accounting of Savings and Debt," Marketing Science, INFORMS, INFORMS, vol. 17(1), pages 4-28.
    4. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(4), pages 181-93, Fall.
    5. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(2), pages 151-61, April.
    6. Nicholas Barr, 2004. "Higher Education Funding," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 20(2), pages 264-283, Summer.
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    Cited by:
    1. Maarten Cornet & Free Huizinga & Bert Minne & Dinand Webbink, 2006. "Successful knowledge policies," CPB Memorandum, CPB Netherlands Bureau for Economic Policy Analysis 158, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Leuven, Edwin & Oosterbeek, Hessel & van der Klaauw, Bas, 2003. "The Effect of Financial Rewards on Students' Achievements: Evidence from a Randomized Experiment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3921, C.E.P.R. Discussion Papers.
    3. Edwin Leuven & Hessel Oosterbeek & Bas van der Klaauw, 2004. "The e ect of financial rewards on students achievement: Evidence from a randomized experiment," HEW, EconWPA 0410002, EconWPA.
    4. Booij, Adam S. & Leuven, Edwin & Oosterbeek, Hessel, 2012. "The role of information in the take-up of student loans," Economics of Education Review, Elsevier, Elsevier, vol. 31(1), pages 33-44.
    5. Oosterbeek, Hessel & van den Broek, Anja, 2009. "An empirical analysis of borrowing behaviour of higher education students in the Netherlands," Economics of Education Review, Elsevier, Elsevier, vol. 28(2), pages 170-177, April.

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