Association for Public Policy Analysis & Management

Panel: Innovations in Student Loan Policy: Field Experiments to Improve Information and Access to Loan Counseling

(Education)

Students’ decisions about how much they borrow to finance higher education have long-term consequences. On the one hand, 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). Consequences of defaulting are severe for borrowers, who are subject to wage garnishments and loss of future eligibility for federal student aid. On the other hand, some students would not be borrowing enough, if the additional financing would enable them to attend institutions where they have a greater probability of graduating or to pursue majors for which there are stronger labor market returns (Avery and Turner, 2012). The current structure of student loan borrowing makes it difficult for students to make informed decisions about how much they borrow. The loan origination process requires students to digest complex information and complicated financial terminology. Students typically have limited, if any, access to professional financial advising to inform these decisions (Castleman, 2015). Our panel features several papers that provide rigorous evidence on the impact of innovative strategies to simplify information about student loans and to facilitate access to loan counseling when students need assistance. In “Nudges, Student Loans, and Academic Outcomes: Experimental Evidence From A Large Community College,” the authors report on a text messaging intervention to support new loan applicants at the Community College of Baltimore County to make more informed borrowing decisions. The text messages provided simplified information about student loans and invited students to write back for one-on-one counseling from a financial aid officer. The paper will report on impacts of the intervention on student loan borrowing, course taking, and course performance. In “Loan Nudges: Experimental Evidence on Effects of Default Options in the Framing of Federal Student Loans,” the authors report on how the framing of loan offers affects students' borrowing decisions. Students at three community colleges located in Illinois, Ohio, and Arizona were randomly assigned to receive different default loan offers, in which only the framing of the loan award – whether or not a particular loan amount is referenced and whether students need to opt-in versus opt-out of borrowing – was manipulated. The paper will report on how this framing affects borrowing, use of other financial resources, employment, and postsecondary outcomes. In “Putting Students on Notice: An Experiment on Information Use in College Student Loan Decisions,” the author examines whether information deficiencies and computational errors factor into college students’ borrowing decisions and if so, how they affect financial and educational choices. Students at a large university were randomly assigned to receive individually-tailored letters with information about student borrowing; the author investigates impacts of these letters on borrowing decisions and educational outcomes. Finally, in “Understanding Variation in Cohort Default Rates,” the author investigates cohort default rates as a student loan accountability measure. The paper examines whether variation in observed cohort default rates can be explained by fluctuations in macroeconomic conditions and borrower characteristics.