Experimental evidence on the impact of student debt letters on borrowing, financial literacy and academic progress

Students walk through the campus of Temple University in Philadelphia

Attending college is often a pivotal financial event in an individual’s life. With so much at stake, it would be reasonable to think that students are making decisions about college enrollment and finances with their eyes wide open. After all, even slight changes in decisions regarding where to go, how much to borrow and which classes to take, can have a substantial impact on a student’s financial future. But the reality is that students often lack an astute awareness of their financial circumstances and make decisions without full information.

Recognition of this deficiency has prompted the higher education community to develop new approaches to help students make more informed decisions about college finances. One approach that has received much attention from college administrators, policy makers and the media is the student debt letter – the practice of sending students periodic summaries of their accumulated student debt.

In “Experimental Evidence on the Impact of Student Debt Letters on Borrowing, Financial Literacy and Academic Progress” (PDF), Beth Akers provides evidence from a new experimental study on effectiveness of a student debt letter in affecting student financial literacy and decision making regarding borrowing and academic progress. Among other things the author finds that:

  • In an experimental intervention, debt letters had no impact on borrowing behavior and did not increase academic achievement, even instances when the letter succeeded in improving financial literacy.
  • Debt letters succeeded in improving financial literacy among Black and Hispanic students, causing them to be able to more accurately report how much they’d borrowed.
  • Interventions designed to affect student decision making should be tailored to the population that are intended to serve. Informational interventions that simply provide information but do not recommend a specific change in in behavior may not succeed in affecting student decision making.

The author concludes that the findings indicate that, despite previous evidence to the contrary, sending periodic debt letters may not be an effective strategy for reducing student borrowing or improving academic progress.

Download the full report here.