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Loan Awarding Practices and Student Demographic Variables as Predictors of Law Student Borrowing Open Access

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Abstract of DissertationLoan Awarding Practices and Student Demographic Variables as Predictors of Law Student BorrowingThis study examined the effect of institutional loan awarding practices and student demographic characteristics on law student borrowing, in order to contribute to our understanding of student borrowing decisions. Behavioral economic concepts like framing and status quo bias suggest that decisions about borrowing may not be made using a rational cost-benefit analysis alone, as traditional economic theory suggests, but may also be influenced by the loan amount that an institution initially awards a student. The amount initially awarded represents the status quo, which, for a variety of possible reasons, the student may be inclined to accept, even if he is eligible to borrow more. Using three years of student borrowing data from a law school, multiple regression analysis was performed to determine the effect of initial loan amount offered and 15 additional independent variables on loan amount borrowed. The law school data provided a unique opportunity to study student loan borrowing decisions because the institution followed two different loan awarding practices in the three academic years for which data was obtained. This provided a quasi-experimental environment in which to study the effect of initial loan amount awarded on loan amount borrowed. Altogether, the model explained nearly half of the variance in loan amount borrowed and initial loan amount offered explained 5.4 percent of the variance in loan amount borrowed holding all other variables in the model constant. In addition to initial loan amount offered, the following variables were also found to be statistically significant predictors of loan amount borrowed: Asian race, age, being married, Expected Family Contribution, cost of attendance, class level, student status, total credits, and total non-loan aid. It was also found that there was no statistically significant difference in the relation between initial loan amount offered and loan amount borrowed in 2008-2009 and 2009-2010, under the old awarding practice, as compared with 2010-2011, when a new awarding practice was in place. This suggests that students responded similarly to the initial loan amount offered, or the status quo amount, under both the old and new awarding practices. 

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