1. Using behavioral science tools to improve borrower outcomes
Josh Martin | Vice President, ideas42
November 3rd, 2016 | National Summit on Solutions to Student Loan Debt, Boston
Thanks, David. I’m going to talk to you work that my organization, ideas42, has been doing with the support of the Gates Foundation and Lumina Foundation to try to improve student outcomes through the application of a series of lessons and insights that have emerged through the relatively new discipline of behavioral science, or the study of how we all make decisions and actions. I’ll start with a quick intro to what we mean by this, and how it might offer new ways of looking at old problems in financial aid that we’re all used to. Then I’ll go into the results of three of our projects in this domain that show, pretty convincingly, that this new way of thinking about problems can yield some impressively cost-effective solutions we might not otherwise consider. I’ll finish with some implementation notes that will hopefully help each of you think through how you might apply some of these insights and solutions at your campus.

2. Why don’t people do what they should?
Choosing the wrong plan
Not picking up the phone
Falling into delinquency
Not applying for forbearance
Sliding into default
Sending in the wrong documents
This is an actual picture from Valencia College, one of our partners I’ll be talking about.

3. Weird things we all other people do
I’m sure none of us are guilty of these behaviors, but let’s look at them anyway. Clearly, humans sometimes behave in ways that seem counter to their own declared intentions.
Now, it’s easy to look at this and come to the conclusion that people behave unpredictably. Hold that thought.

4. What does the science say?
It’s because of this thing we all have called the brain. It’s wired in certain ways that make our experience of the world a pretty good proxy for reality. Pretty good, but not perfect.

5. Our model of the people we work with
It’s because of this thing we all have called the brain. It’s wired in certain ways that make our experience of the world a pretty good proxy for reality. Pretty good, but not perfect.

6. Say out loud the color of the shape you see on the screen.
You have one job…
Say out loud the color of the shape you see on the screen.
Let’s do an example. Here’s your task…

7. WWS312/PSY321: Lect 3
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8. WWS312/PSY321: Lect 3
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9. WWS312/PSY321: Lect 3
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11. WWS312/PSY321: Lect 3
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12. WWS312/PSY321: Lect 3
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13. WWS312/PSY321: Lect 3
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15. WWS312/PSY321: Lect 3
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BLUE
This one always works. Why? Because we have two ways of thinking: system 1, and system 2. If I flipped the slides slower and gave you more time to think, you might not have made this mistake. But when you’re on a roll, you’re not thinking to carefully about what’s next. Most of our life is like this, and it’s probably a good thing since it saves our energy and concentration for the things that supposedly matter more.
Remember the thought you had before about people behaving unpredictably. Now, I KNEW you were going to make this mistake. How did I know? Because it’s not that people behave irrationally, it’s that they’re (as Dan Ariely says) “predictably irrational”. All this means is that people make mistakes, but they do so systematically. So, if we know enough about the context for people’s decisions and actions, we can often predict what decisions and actions they will make…or not make.

16. When might borrowers need to think carefully?
FAFSA completion
Course registration
OK, let’s take this back to post-secondary education…
Choosing among aid options

17. Standard Model of Decisions and Actions
Outcome
I want X
So, what should I do?
I get X
Yes A
Yes No B No
Don’t know

18. BEHAVIORAL Model of Decisions and Actions
Outcome
I want X
So, what should I do?
I get X
Is it easy?
Am I in the right mood?
Yes A
Yes No B No
Don’t know
Will it take a long time?
Can I put it off?

19. BEHAVIORAL Model of Decisions and Actions
Problem: Students are not applying for financial aid (even though they’re eligible to)
Traditional perspective:
They lack information
They don’t want/need aid
Not enough aid is available
Behavioral perspective:
The form is a hassle to fill out
It contains things that make students question whether they’re “right” for college

20. The ideas42 Methodology DEFINE DIAGNOSE DEFINED PROBLEM DESIGN
REDEFINE PROBLEM
FIND ANOTHER BOTTLENECK
STATED PROBLEM
DISENTANGLE PRESUMPTIONS
CAPACITY AND SCALABILITY
INTERVENTION CONCEPT
CONTEXT RECONNAISSANCE
BEHAVIORAL
MAP
HYPOTHESIZED BOTTLENECKS
POLISH INTERVENTION
DETERMINE FEASIBILITY
CLARIFY OUTCOMES
IDENTIFY
SIDE EFFECTS
ROBUST EXPERIMENT
ideas42
partner
sequential
iterative
as necessary
consumer
DEFINE
DIAGNOSE
DEFINED PROBLEM
DESIGN
ACTIONABLE BOTTLENECKS
TEST
SCALABLE
INTERVENTION

21. Where you fit in You are an innovator at your institution
[yes, you are]
Using tools from behavioral science, you can:
Become a more intentional problem solver
Come up with and test low-cost creative solutions to further support your students

22. great lakes financial aid relief options

23. Problem: Borrowers do not complete loan distress relief paperwork
Graduates of the class of 2015 are the most indebted class in US history
One in four student loan borrowers are either in delinquency or default on their student loans
In the second half of 2015, 2.8 million borrowers
were at least a month behind on payment
Income Based Repayment, Forbearance and Deferment plans were created to help
Yet, far less than half of delinquent borrowers who commit to sending back the paperwork these programs follow through
Sparshott, Jeffrey. (2015, May 8). Congratulations, Class of You’re the Most Indebted Ever (For Now). indebted-ever-for-now/
Berman, Jillian. (2016, Jan 19). America’s Growing Student Loan Debt Crisis.
Noun Project: Felix Westphal, Lloyd Humphreys, David Courey

24. what DO borrowers experience in the process to enroll in a loan relief plan?
Receive Call From Great Lakes Agent
Elect to Apply for Repayment Plan
Fill Out Application
Send Back Correct & Completed Application 1 2 3 4
Borrowers avoid Great Lakes outreach (ostriching) because they don’t want to hear bad news
Borrowers defer the decision to apply for a repayment plan due to multiple confusing options
Borrowers fail to begin the process or get stuck on a single step due to hassles
The complexity of the application prevents students from completing the form fully and correctly
Enrollment is a four stage process starting with a call from a representative, making a commitment to complete an application, filling out the application and returning one that is correct and complete (otherwise will need to start application process again)
Each step has multiple behavioral bottlenecks, some are highlighted here. One to pull out is that about hassles, including the application form itself- which is multiple pages questions, eligibility requirements and glossary terms in small text
To address this, without being able to make direct changes to the form, we created a document jacket…

25. how did we address these bottlenecks?
Receive Call From Great Lakes Agent
Elect to Apply for Repayment Plan
Fill Out Application
Send Back Correct & Completed Application 1 2 3 4
Borrowers fail to begin the process or get stuck on a single step due to hassles
“Here is a checklist to help you fill out your application…”
One bottleneck to highlight is the large affect of seemingly small hassles, which includes the application form itself. It is multiple pages of questions, eligibility requirements and glossary terms in small text
To address this, without being able to make direct changes to the form, we created a document jacket…

26. clear, actionable checklist friendly and personalized
the document jacket
clear, actionable checklist
friendly and personalized
easy to understand
No showing of our checklist!

27. how did we address these bottlenecks?
Receive Call From Great Lakes Agent
Elect to Apply for Repayment Plan
Fill Out Application
Send Back Correct & Completed Application 1 2 3 4
“You’ll soon get a call from your Great Lakes representative”
“Here is a checklist to help you fill out your application…”
“Don’t forget to submit your forms! It’s easy…”
We supplemented the step by step checklist with a suite of s introducing Great Lakes before the call and reminding borrowers about the application process 5 and 10 days after their call and commitment.

28. how did we address these bottlenecks?
friendly and personal tone
arrives at the right time
makes preparation easier
To create rapport and trust – 1
To remind and keep people on track – 2
To simplify confusion and jargon - 3

29. those who got an email introduction were more likely to commit to a plan
+4% *
Borrowers that received the initial introducing Great Lakes and letting them know about a coming call, were slightly more likely (p=0.06) to make a commitment, once on the phone, to complete a debt relief plan application. Between treatment and control there was a 4% increase in the number of borrowers making a promise.
* p ≤0.1

30. treatment borrowers were more likely to return ibr application
+18%
The application checklist and follow up s were particularly effective in helping borrowers that were interested in Income Based Repayment to complete and return the application. Between treatment and control there was a 18% increase in the number of borrowers that returned the IBR application. (No other significance difference was seen in return rates for the other application types or overall).
**p≤0.05

31. the document jacket is driving this improvement
+41% **
Mail applications made up 13% of all applications sent (with the rest being ed). was the default choice so only those who specifically asked for a mailed application received the document jacket.
Although, those that asked for mail were a comparatively smaller group, the increase in IBR returns for those receiving the document jacket drives a lot of the change we saw in overall IBR returns (from the previous slide). Between treatment and control there was a 41% increase in the number of borrowers that returned the IBR application when they received it by mail.
This is a huge result and quite rare in behavioral experiments. To us, this says that the form is indeed confusing people. And, some such solution in the electronic version could really help.
**p≤0.05

32. project takeaways
Improvements can be made without changing the form itself bythrough better borrower-facing communications
Only one personalized and friendly upfront increased commitment rates; think what we could have done with more outreach
At scale, each additional completed IBR application would cost $8-17
Technology is only useful insofar as it improves the borrower experience!
Only 3% of borrowers called were even reached. In work by the DOE, they found that this upfront engagement is paramount to repayment success
The at scale CEA is the minimum estimate

33. valencia college repayment plan choice

34. problem: students may choose a suboptimal repayment plan
17%
of student loans overall are delinquent or in default1
29%
of delinquencies occur in first 60 days of repayment at Valencia
Valencia loans in the Standard Plan
3.3x
more likely to be delinquent
1. DoE 2014

35. what makes it hard to choose a plan?
Student enters school
Signs promissory note
Defaulted into Standard Plan (100%)
IN SCHOOL
Exit counseling
Can only switch plans once repayment begins
Graduates, drops out, etc.
GRACE PERIOD
(6 MONTHS)
Only 60% of borrowers at Valencia still under Standard Plan
Enters repayment
Student gets behind on payments
Contacted by servicer?

36. what makes it hard to choose a plan?
too much information
difficult language
hard to compare

37. behaviorally redesigned table
key information salient
straightforward language
easier to compare

38. treatment groups considered different factors when choosing plan…** **
† = significant at 90% level, * = significant at 95% level, ** = significant at 99% level

39. …and remembered those factors better**
† = significant at 90% level, * = significant at 95% level, ** = significant at 99% level

40. choice of standard plan was not significantly different in treatment* † **
† = significant at 90% level, * = significant at 95% level, ** = significant at 99% level

41. takeaways
We can get borrowers to consider different factors simply by changing the salience of information
To really influence choice, we have to intervene closer to the moment when they’re actually choosing
School and servicer need to work together to reach students at the critical moment when their grace period expires
Only 3% of borrowers called were even reached. In work by the DOE, they found that this upfront engagement is paramount to repayment success
The at scale CEA is the minimum estimate

42. Be a behavioral innovator -- it’s easier than you think!
Personalized prep and reminder s
Checklists and decision aids
BONUS: Texting
platform with standard RTF or html capabilities
Access to borrowers
Data on borrowers’ situations
Control over mailer look/feel
Legal counsel (for word changes)
Low-cost materials
Cheap, easy-to-use texting platform like SignalVine
Ability to collect cell phone numbers
All require:
High-level support within the institution
Careful investigation of the context for borrowers’ decisions and actions (each case is different!)

43. Take out your phone. Text “Boston” to (240) 883-5605 Want more info?
[we’ll be in touch if you give us your address; otherwise we won’t]
Let’s do an example. Here’s your task…

45. Josh Martin, Vice President
Thank you!