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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

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's 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.

Suggested Citation

  • Erica Field, 2006. "Educational Debt Burden and Career Choice: Evidence from a Financial Aid Experiment at NYU Law School," NBER Working Papers 12282, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12282
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    1. Booij, Adam S. & Leuven, Edwin & Oosterbeek, Hessel, 2012. "The role of information in the take-up of student loans," Economics of Education Review, Elsevier, vol. 31(1), pages 33-44.
    2. Edwin Leuven & Hessel Oosterbeek & Bas van der Klaauw, 2010. "The Effect of Financial Rewards on Students' Achievement: Evidence from a Randomized Experiment," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1243-1265, December.
    3. 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, vol. 28(2), pages 170-177, April.
    4. Manuel S. González Canché, 2017. "Financial Benefits of Rapid Student Loan Repayment: An Analytic Framework Employing Two Decades of Data," The ANNALS of the American Academy of Political and Social Science, , vol. 671(1), pages 154-182, May.
    5. Manuel S. González Canché, 2020. "Community College Students Who Attained a 4-Year Degree Accrued Lower Student Loan Debt than 4-Year Entrants Over 2 Decades: Is a 10 Percent Debt Accumulation Reduction Worth the Added “Risk”? If So, ," Research in Higher Education, Springer;Association for Institutional Research, vol. 61(7), pages 871-915, November.
    6. Maarten Cornet & Free Huizinga & Bert Minne & Dinand Webbink, 2006. "Successful knowledge policies," CPB Memorandum 158, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Elizabeth Weber Handwerker, 2011. "Delaying Retirement to Pay for College," ILR Review, Cornell University, ILR School, vol. 64(5), pages 921-948, October.

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    More about this item

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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