Association for Public Policy Analysis & Management

In a market based system of higher education it is important that students, the consumers, make savvy decisions about their spending.  But recent evidence has made clear that some students lack a basic understanding of their college finances while enrolled.  This makes it unlikely that these students are making the best choices regarding continued enrollment, borrowing, major selection and course selection.  This lack of savvy decision making, therefore, may be leading to a number of the systemic problems in the higher education system, including extended time to degree, tuition inflation, and regret of borrowing.  

To examine how improved access to information on financial aid and borrowing affects students’ behavior, we report in this study results from a multi-site randomized controlled field experiment that examines the effects of an informational intervention on the financial aid and loan behavior of college students. Our experiment includes nearly 20,000 students across four geographically disperse public universities in the United States. Randomly identified treatment group students received a letter from their universities informing the student about educational costs, student loan debt, and degree progress. We compare the educational and financial decisions of these students to control group students who did not receive a corollary letter. We obtain data from both university administrative records and student surveys.

This study is motivated by increasing evidence that college students may be making distorted or ill-informed financial decisions (Akers & Chingos, 2014; Bettinger et al., 2012; Cadena & Keys, 2013; Wiswall & Zafar, 2013). The costs of poorly informed financial and educational decisions has gained national policy prominence, with growing concern about upswings in outstanding student loan debt and rates of costly student loan default (Federal Reserve Bank of New York, 2014) and increasing time to degree completion (Bound, Lovenheim, & Turner, 2012).

Our experiment situates itself in the context of initiatives by universities to decrease borrowing of students (Kennedy, 2015) and an emerging literature that uses experiments to evaluate interventions that promote prudent decisions related to student borrowing (e.g., Barr, Bird, & Castleman, 2016; Marx & Turner, 2016; Schmeiser, Stoddard, & Urban, 2015). This study is unique along a number of dimensions, most notably because of its scale (nearly 20,000 students) and diversity of participating institutions (geographically, and also based on student demographics and institutional missions). The scope of our study provides us power to test variants of intervention delivery and examine the effects of on information on the decisions of heterogeneous subgroups.