Educational Financing and Lifetime Earnings

This paper formulates and estimates a dynamic programming model of the optimal educational financing decisions and post-graduation career choices of law school graduates. The main purpose of the paper is to measure the effect of short-term parental cash transfers, received during school, on in-school work and borrowing decisions and post-graduation lifetime outcomes. The relative importance of parental cash transfers in determining lifetime outcomes has interesting practical implications for the expected impact of recent changes in education policy. The results of the study suggest that parental cash transfers do not have a significant effect on post-graduation lifetime earnings. Parental cash transfers do, however, significantly increase lifetime consumption. The estimated behavioral model is also used to simulate the effects of a counterfactual educational loan-forgiveness program. The results suggest that educational debt has only modest effects on post-graduation career choices