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

TLDR

The study investigates how psychological responses to debt influence career choices by randomly assigning alternative financial aid packages to law school admits. Students were randomly given packages of equal monetary value that tied repayment to public‑interest work: one required a loan reimbursed by the school if the student worked in public interest law, the other covered tuition provided the student worked in public interest law, with reimbursement required otherwise. Recipients of tuition assistance were 36–45 % more likely to take public‑interest positions and, when lottery results were announced before enrollment, were twice as likely to enroll. JEL codes: I21, I22, J44, D14.

Abstract

This paper examines the influence of psychological responses to debt on career choices from an experiment in which alternative financial aid packages were assigned by lottery to a set of law school admits. The packages had equivalent monetary value, but one required the student to take on a loan that would be paid for by the school if he worked in public interest law, while the other covered tuition as long as the student worked in public interest law. If he did not, the student would be required to reimburse the school. Tuition assistance recipients have a 36 to 45 percent higher public interest placement rate and, when lottery results were announced before enrollment, were twice as likely to enroll. (JEL I21, I22, J44, D14)