Nudging Community College Students into Borrowing

By Jael Greene

Student Loan Nudges: Experimental Evidence on Borrowing and Educational Attainment, a paper recently released by the National Bureau of Economic Research (NBER) examined the practice of “nudging” community college students into taking out student loans to finance their postsecondary education and the effects that this action had on both credits earned and GPA. For this study, students were given financial aid letters that contained non-binding loan offers and were broken into two groups. The two groups were randomly assigned either a loan offer of zero dollars or a nonzero loan offer of $3500 for “freshmen” and $4500 for “sophomores”. [1]

Key findings include:

• The students who received nonzero loan offers were 40% more likely to borrow to pay for school than those who received a loan offer of zero.
  • Students who received nonzero loan offers were significantly more likely to borrow exactly the amount that they were offered.
• Nonzero loan offers produced sizeable gains in educational attainment.
  • Students with nonzero loan offers earned 3.7 more credits on average than those who received loan offers of zero.
  • Students with nonzero loan offers also increased their GPA by 0.6 points on average than those who received loan offers of zero.
  • Nonzero loan offers also increased the probability of transfers to 4-year institutions by 10 percentage points.

[1] For the purpose of this study, the researchers designated students as freshmen or sophomores based on credit hours. Freshmen were students who had completed less than 30 credit hours. These nonzero loan offers were considered to be nudges toward borrowing.