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Income-Driven Repayment

Photo credit (Creative Commons)

What was the challenge?

As student loan balances have risen in recent years, an increasing number of borrowers have struggled to stay on track with their payments. At-risk and delinquent borrowers may benefit from alternative repayment plans offered by the U.S. Department of Education known as income-driven repayment (IDR) plans. These plans link monthly payment amounts to borrower incomes, and can make student loan repayment more manageable.

What was the insight?

Borrowers are busy, and decisions about student loan plans can be complex and challenging. Research from behavioral science finds that clear, timely notices can help people take up and choose programs like income-driven repayment plans. Sharing information about IDR options with borrowers at key moments can help borrowers make informed decisions about applying for those plans.

What was the pilot?

An e-mail campaign was conducted to increase awareness of IDR plans and help borrowers make more informed decisions about loan repayment options given their circumstances. The campaign sent emails to over three million borrowers last year 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. Among the 841,442 borrowers who were 90 to 180 days delinquent on their loans, emails were sent in two waves roughly three weeks apart, in order to measure the impact of these emails.

What was the impact?

Sending emails to delinquent borrowers resulted in a statistically significant, four-fold increase in completed IDR applications compared to those who had not yet received an email. A total of 4,327 applications for IDR were made by the former group, compared with only 982 applications by the latter. These results suggest that sending just a single email led roughly 6,600 additional borrowers in total to sign up for an IDR plan.

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