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

39 Pages Posted: 8 Jun 2006 Last revised: 8 Dec 2012

See all articles by Erica Field

Erica Field

Duke University, Fuqua School of Business-Economics Group; Duke Innovation & Entrepreneurship Initiative

Date Written: June 2006

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.

Suggested Citation

Field, Erica, Educational Debt Burden and Career Choice: Evidence from a Financial Aid Experiment at Nyu Law School (June 2006). NBER Working Paper No. w12282. Available at SSRN: https://ssrn.com/abstract=906760

Erica Field (Contact Author)

Duke University, Fuqua School of Business-Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States
(919) 660-1857 (Phone)

HOME PAGE: http://sites.duke.edu/ericafield/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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