Nudging Students Toward Smart Borrowing: Using loan summaries to help borrowers better understand their loans

By Matt Nettleton, Inceptia Strategic Business Director

As students increasingly rely on loans to finance part or all of their college education the need for relevant, timely information to help make informed borrowing choices has become more critical than ever.

Students themselves are indicating a need for such initiatives, as demonstrated through a number of surveys that uncover numerous confusing concepts for loan borrowers. Consider the following:

·         48% of borrowers either don’t know or incorrectly estimate the amount they have borrowed.1

·         28% incorrectly believe they have no federal loans at all.1

·         94% of student borrowers do not understand their loan repayment terms.2

The ramifications for borrower confusion can be significant. When students do not invest in or avail themselves of existing loan counseling resources, those students, as well as schools and society at large, suffer from the effects of over borrowing, lower degree attainment, increased attrition, and student loan default.

A number of schools and states, however, are using a simple yet innovative approach to help students actively manage loan debt as they progress toward degree completion. These institutions use loan summaries, sometimes called “debt letters,” to supplement loan counseling practices and expand on financial education outreach—keeping students apprised of their individual borrowing levels and allowing them to make informed choices about future repayment scenarios.

Loan summaries/debt letters are a simple, low-touch effort to keep student borrowers engaged in the active management of their loans while in school. While letters can vary among institutions, commonalities include a summary of current aggregate borrowing, estimated monthly repayment amounts, and resources for learning more or obtaining help. These summaries are strategically scheduled to be delivered at times when students are making financial aid and/or course registration decisions, thus providing a highly-effective, just-in-time intervention for borrowers.

Inceptia’s newest research brief, Loan Summaries: Nudging Students Toward Smart Borrowing, examines how three different universities administered their loan summary initiatives and the corresponding results on student behavior. The results offer support that this simple, lost-cost practice can impact not only borrowing behaviors, but also academic performance and enrollment persistence. Furthermore, the brief offers best practice considerations for schools looking at implementing loan summaries as to support student success.

The research brief and a recorded webinar diving deeper into the brief’s findings and offering insight and strategies on how loan summaries help borrowers better understand their loans can be viewed at https://www.inceptia.org/smart-borrowers/.

1. Akers, E. and Chingos, M. (2014, December). Are College Students Borrowing Blindly? Brookings Institution. Retrieved from: https://www.brookings.edu/wp-content/uploads/2016/06/Are-College-Students-Borrowing-Blindly_Dec-2014.pdf

2. Rathmanner, D. (2016, January). January 2016 Student Loan Borrower Survey. LendEDU. Retrieved from https://lendedu.com/blog/January-student-loan-survey.

Financial education throughout the student lifecycle

By Angela Henry, Strada Education Network

We know that “one and done” financial education for students is not enough. You need to consistently communicate throughout the stages of the student lifecycle, providing education on relevant topics at the right time.

Stage 1: Application and First 90 days of school

·         Look at your entrance counseling process. Your program may be meeting the regulatory requirements, but is it providing students with the information they need to set them off on the right foot?

·         Evaluate your financial literacy efforts. Are you providing students and their families access to the appropriate money management education to make a financial plan while they are going through application process?

·         Assess your packaging strategy.

·         Encourage students to complete a budgeting worksheet to understand their resources and expenses.

·         Help students research outside scholarships.
           

Stage 2: In-school period

·         Emphasize the student’s responsibility to borrow only what he or she needs and to spend that money wisely.

·         Look for opportunities to integrate money management education into the student's academic program.

·         Help your students access their National Student Loan Data System (NSLDS) account.

·         Talk to students about their loan needs for the entire length of their program, rather than thinking of borrowing as a once a year decision.

·         Don’t wait for exit counseling to remind students of repayment options.

Stage 3: Final year and program completion:

·         Ensure sure students register with their servicer(s) and establish initial contact.

·         Provide student the link to the NSLDS and help them find a listing of all of their loans.

·         Emphasize the importance of selecting the right repayment plan for their situation.

·         Remind borrowers that, as their circumstances and income change, they can make additional principal payments or change their repayment plan.

Stage 4: Post-graduation (or withdrawal):

·         Communicate with borrowers during grace period to let them know that you are there to help, and if they run into difficulty making payments, they should contact you.

·         Provide students who withdrew without completing their programs information on getting back in school.

If you need assistance with borrower outreach, consider a third-party cohort management solution.

Four Tips for an Effective Default Prevention RFP

Submitted by: Angela Henry, USA Funds Account Executive

Student loan default prevention experts recommend taking advantage of outside resources to assist in your efforts to keep students on track to successful repayment. If you’re planning to seek proposals from outside organizations for providing default prevention assistance, there are some best practices you’ll want to keep in mind as you develop your Request for Proposal:

1.    Clearly state your institution’s goals and objectives regarding your default management program needs and requirements.

Bidding vendors, RFP bid reviewers and decision-makers should have a clear understanding of your institution’s goals and objectives, outcomes you are seeking, and the proposed services that vendors offer. Is your goal to:

·         Reduce your cohort default rate to a specific target?

·         Generally reduce or maintain a current CDR?

·         Implement a wide-reaching default prevention service to assist your borrowers and improve future borrower repayment rates?

You might even consider cross-campus collaboration to help identify specific goals for your institution. When everyone understands the goal, it’s easier to assess which vendors actually satisfy your requirements.

2.    Build in plenty of specifics about the services you are requesting.

Default prevention vendors provide various types and levels of services. For instance, some focus on direct outreach to borrowers, and some look to borrowers to sign up for services (a self-service approach). Consider these questions:

·         Do you want vendors to focus on one specific cohort year or all three active cohorts?

·         Are you looking for a fully outsourced solution, or will your institution want to play a role in contacting borrowers as part of your default prevention efforts?

·         Will you require skip tracing?

·         Do you need online system access and reporting features?

·         Will you require dedicated technical support from your provider?

·         What technical support is required of you to implement the service?

·         Will you require periodic check-in meetings with your provider, and will you expect results reporting on a regular basis?

·         What metrics will you use to evaluate the provider’s performance?

If you plan to benchmark one provider’s performance against another, be sure you are comparing the same scope of data and results. If the vendor’s proposed services (and prices) match closely the requested services in your RFP, it is a good sign that the vendor has put some effort into really understanding your needs.

3.    Require standard pricing information from all bidding vendors.

Does your institution require an annual, all-inclusive price, or do you prefer to pick and choose from a menu of options? To be sure that the services included in that pricing meet all of your requirements, ask for specific descriptions of the work the vendors will perform — including the number of borrower accounts that will be included — and request an explanation of how costs are built into their models. Be sure vendors also explain clearly the costs associated with any additional services in their proposals. And to keep things clear, provide a pricing matrix for all vendors to complete, so that pricing bids are equal across the spectrum.

4.    Take time to analyze and understand your bids.

When it is time to review your vendor bids, calculate all scoring of proposed services and pricing, using the same criteria for all vendors. Different services offered by vendors could influence their effectiveness in reducing CDRs. Consider these important variables when making a final comparison:

·         The borrower population to be contacted.

·         The method of the contact.

·         The frequency of contact attempts.

·         The length of one-on-one time spent with your borrowers.

If you need assistance with default prevention planning, visit www.borrowerconnect.org.

Putting ‘Big Data’ to Work to Prevent Student Loan Default

Submitted by: Angela Henry, USA Funds Account Executive

Which borrowers at your school are most likely to default on their student loans?

It’s a question you need to be able to answer to most effectively prevent those defaults. And there’s only one way to know the answer:

Analyze the data.

The importance of ‘big data’

Being proactive in your default prevention means not only helping borrowers who are in trouble to get back on track, but also keeping borrowers whose loans are in good standing from falling behind in the first place.

Seems like a daunting — and expensive — task. And it can be, if you take the blanket approach traditionally employed by schools working to lower their cohort default rates.

But the better approach is to work smarter, not harder.

Determine the characteristics of your institution’s borrowers who are most likely to default, and then take a targeted approach to default prevention.

To find those characteristics, you have to go beyond making assumptions. That’s because there’s no set rule for who most frequently defaults. The attributes of defaulters at one school are not necessarily the same as those at another.

You have to analyze the data for your own borrowers.

Then you can target your default prevention, allocating the most support to those who are likely to need the most help. This approach allows you to make the best use of your resources.

What data can you study to determine which borrowers are at greatest risk of defaulting? Here are some examples:

·         Standardized test scores.

·         Student application details.

·         Contact or interaction history.

·         GPA.

·         Full- or part-time or online enrollment status.

·         Major.

·         Employment status.

·         Involvement in on-campus activities

·         Student loan and grant information.

·         Alumni engagement.

Putting ‘big data’ to work

Institutional data, servicer files, and the National Student Loan Data System all are good sources of borrower information that can help you find out who’s most at risk of defaulting at your school.

You can turn that data into actionable insights that guide your targeted borrower outreach plan. USA Funds’ cohort analysis approach is to categorize your portfolio of borrowers into three levels of default risk: low, moderate and high. And that default risk, along with a borrower’s repayment status and your school’s default prevention budget, should dictate how you implement your borrower outreach strategies.

If you need assistance with default prevention planning, visit www.borrowerconnect.org.