Behavioral nudges prevent loan delinquencies at scale: A 13-million-person field experiment

Abstract

Americans collectively hold over $1.6 trillion in student loan debt, and over the last decade millions of borrowers have defaulted on loans, with serious consequences for their financial health. In a 13-million-person field experiment with the U.S. Department of Education, we tested the effectiveness of different email interventions to inform borrowers about alternative repayment options after a missed loan payment. Our interventions tested whether sending monthly behaviorally-informed emails, providing follow-up reminders, framing benefits in percentage (vs. dollar) terms, and providing just one recommended action step at a time (vs. two) affected borrower outcomes. We find that i) behaviorally-informed emails reduce estimated 60-d delinquencies by 0.42 pp, ii) reminders boost the efficacy of such emails by 0.57 pp, iii) describing potential savings in percentage terms is more effective than describing these benefits in dollar terms, reducing estimated delinquencies by 0.14 pp, and iv) encouraging two actions (i.e., enrollment in income-driven repayment plans and auto debit programs) repeatedly across two emails is marginally more effective than encouraging one action at-a-time across two emails, reducing estimated delinquencies by 0.05 pp. Overall, if scaled to all 13-million borrowers in our experiment, we estimate that our best-performing intervention would have averted approximately 79,800 60-d delinquencies. Our findings i) highlight the benefits of describing potential savings in percentage terms, which may magnify perceived savings for recipients, ii) underscore the risks of oversimplification, and iii) demonstrate that nudges can be an effective, low-cost complement to other policies for reducing delinquencies and supporting borrowers with student loan debt.