A Promising Pilot to Help Student Borrowers

Cross-posted from the White House OSTP Blog.

Investing in postsecondary education is among the smartest choices Americans can make. College completion opens doors and expands economic opportunity, leading to lower rates of unemployment and higher earnings over the course of a career. But tuition rates have risen significantly in recent decades, and obtaining a college degree increasingly depends on students’ ability to take out loans and manage repayment after leaving school. While most borrowers are able to repay their student loans, many struggle, and some fall behind.

That’s why last month the President and his Administration announced a series of executive actions to help reduce the burden faced by student loan borrowers and make postsecondary education more affordable and accessible to American families. A centerpiece of this action plan is to improve the effectiveness of communications to borrowers about flexible repayment options the U.S. Department of Education offers to help ensure they stay on track with their payments. This includes income-driven repayment plans – Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment – that link monthly payments to borrower incomes.

We know borrowers are busy and that decisions about student loan plans can be complex and challenging. That’s why the Office of Federal Student Aid at the Department of Education has teamed up with the White House Social and Behavioral Sciences Team, a group of experts who focus on effective, innovative strategies for helping government programs and communications better serve citizens.

In November 2013, Federal Student Aid, in collaboration with the White House Social and Behavioral Sciences Team, launched an e-mail campaign to increase awareness of Income-Driven Repayment and help borrowers make more informed decisions about loan repayment options given their circumstances. The campaign sent emails to borrowers who had fallen behind on their payments, had higher-than-average debts, had grace periods coming to an end, had deferred or entered forbearance because of financial hardship or unemployment, or some combination of the above. In total, the campaign sent emails to over three million borrowers last year and 221,000 submitted applications.

The team embedded a rigorous, randomized-control pilot into the broader campaign, which measured the impact of e-mails designed based on insights from the behavioral sciences on action among borrowers in delinquency for 90-180 days. These e-mails indicated income-driven repayment eligibility criteria, the benefits associated with taking action and the costs associated with inaction, and the relevant web-links and servicer contact information. Behavioral science research demonstrates that timely, clear and low-cost informational messages of this kind can help citizens better understand their options, make more informed decisions, and follow through on their intentions.

Results of the pilot are promising. Sending e-mails to borrowers in delinquency for 90-180 days resulted in a statistically significant, four-fold increase in completed income-driven repayment applications. This effect translates into roughly 6,000 additional completed applications in just the first month after sending among the 841,442 borrowers in the pilot.

We are working together to use insights from this trial to inform future communications and develop even more effective ways of reaching borrowers to help them stay on track.

Maya Shankar is Senior Advisor for the Social and Behavioral Sciences at the White House Office of Science and Technology Policy.

Ajita Talwalker Menon is the Senior Policy Advisor for Higher Education at the White House Domestic Policy Council.

1 Comment

  1. A better use of resources would be to crack down on the lenders inept communication skills and ability to address problems with accounts. When you call on the phone to ask questions, the call center people can only tell you as much as the website does — if there is an error on the account there is no recourse other than sending paperwork by snail mail or fax and waiting for a reply. I’ve also received directly contradictory statements by two separate customer service agents [I'm not blaming them, they are clearly not paid very well and they don't have access to much information about your account, nor are they allowed to go in and make any changes to errors]. Sallie Mae accidentally withdraw over $700 from my partner’s bank account, causing her to bounce a check. Instead of apologizing and rectifying the situation, they made her fax (who uses faxes anymore?) a request for reimbursement. I never had a problem with my account with Sallie Mae until I got onto the Income Based Repayment Plan. Now I get inaccurate statements that the people at the call center tell me to ignore rather than trying to fix. Most recently, they randomly removed me from auto-debit without notifying me until my account was passed due.

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