Association for Public Policy Analysis & Management

In this paper we report on an intervention to support community college students to make more informed borrowing decisions. The intervention is designed to address dual trends: Students are borrowing more over time to finance their college educations, while default rates have nearly doubled over the last decade (The College Board, 2013; The Project on Student Debt, 2013). These trends are a concern for policy makers, higher education institutions, and students alike. Consequences of defaulting are severe for borrowers, who are subject to wage garnishments and withholding of other government disbursements as well as loss of future eligibility for federal student aid.

Our paper is motivated primarily by behavioral theories for why students may struggle with student loans. Various aspects of the loan origination process may result in students making sub-optimal borrowing decisions. Students may be overwhelmed by the complexity of the financial aid process and loans in particular. They may be confused by the differences between federal and private loans, and may not understand the consequences of defaulting on student loan debt. Present bias may lead students to focus primarily on short-term considerations (e.g. being able to spend the refund they get if their loan amount exceeds tuition) and fail to put enough weight on longer-term ramifications of carrying too much debt. Students may face barriers to accessing help with the financial aid process. Without access to professional advising, students may struggle to make decisions that best position them for financial success during and after college.

            To address these behavioral obstacles we implemented a text messaging intervention for new loan applicants at the Community College of Baltimore County (CCBC). Prior research has demonstrated that text messaging campaigns that provide students with important financial aid information and which facilitate connections to professional assistance can generate substantial increases in college enrollment and persistence (Castleman & Page, 2015; Castleman & Page, forthcoming).

The messages are designed to de-bias students’ borrowing decisions and to support students to make connections between the amount they borrow, the field of study they pursue, and the earning returns typically associated with these fields. The messages are personalized to students based on the amount they intend to borrow in a given year as well as how much debt they have assumed up until that point in time and the field of study they have indicated an interest in pursuing. The messages also invite students to reply if they need one-on-one counseling from a financial aid advisor.

            We implemented the text message campaign in the 2014-2015 academic year and it will continue through the Fall 2015 semester, with a total experimental sample of approximately 3,000 new loan applicants. CCBC loan applicants are primarily low-income students of color, with the median student in their late-20s. Students were randomly assigned to receive the messages or to a control group. In our paper we will report the impact of the intervention on how student borrowing; course-taking and course-performance outcomes; and whether students persist at CCBC or transfer to another institution.