Reducing Barriers to Enrollment in Federal Student Loan Repayment Plans: Evidence from the Navient Field Experiment Holger Mueller Constantine Yannelis NYU, NBER, CEPR, & ECGI University of Chicago & NBER September 2019 Note: The views expressed in this presentation are solely those of the authors and do not necessarily represent the views of the data provider or any other organization. Vu Pham
Student Loan Debt Crisis Holger Mueller and Constantine Yannelis Navient Field Experiment
Student Loan Debt Crisis • Student loan balances, delinquencies, and defaults: • With over 44 million borrowers and $1.46 trillion in outstanding balances, student loan debt is second largest consumer debt category behind only mortgages ($9.12 trillion) and before auto loan debt ($1.27 trillion) and credit card debt ($0.87 trillion). • Student loans exhibit highest delinquency and default rates among any type of household debt: 11.4% of student loan debt is either seriously (90 days or more) delinquent or in default, compared to 1.2% of mortgage debt, 4.5% of auto loan debt, and 7.8% of credit card debt. Source: FRBNY Quarterly Report on Household and Credit (2018:Q4) Holger Mueller and Constantine Yannelis Navient Field Experiment
Student Loan Debt Crisis Balance Time Trend Holger Mueller and Constantine Yannelis Navient Field Experiment
Income-Driven Repayment (IDR) Plans • 10-year standard repayment plan: Total loan balance is divided evenly into fixed monthly (annuity) payments • over a 10-year repayment period. • To help student loan borrowers avoid delinquency and default, federal government provides Income-Driven Repayment (IDR) plans: Monthly payments depend on borrower’s discretionary income— • difference between annual income and (typically) 150% of federal poverty guideline. If annual income is low, monthly payments are low or even zero. Repayment period is extended up to 25 years, at the end of which any • remaining loan balance is forgiven. IDR Plans Holger Mueller and Constantine Yannelis Navient Field Experiment
IDR Take-Up Value of government subsidy for federally issued student loans in IDR • plans estimated to be $74 billion. 21% subsidy rate, or average cost to government of $21 for every $100 in • student loans disbursed (GAO, 2016). • IDR take-up remains incomplete … Only about 20% of borrowers who are eligible for IDR are enrolled in • program (Treasury Department, 2015). • … even among borrowers who are pre-qualified and hence fully aware of their program eligibility. “ Only 27% of pre-qualified borrowers were returning their applications. • We studied the process and … determined that the complexity and effort required to print, sign and return the IDR application was negatively impacting the application return rate ” (Navient, 2017). Holger Mueller and Constantine Yannelis Navient Field Experiment
IDR Take-Up “ Too many borrowers have had difficulties navigating and completing • the IBR application process once they have started it [...] Although the Department of Education has recently removed some of the hurdles to completing the process, too many borrowers are still struggling to access this important repayment option due to difficulty in applying .” Barack Obama, White House Presidential Memorandum, 2012 IDR Application Holger Mueller and Constantine Yannelis Navient Field Experiment
IDR Take-Up “ In the IDR application process, once we review the program with the • borrower and pre-qualify them for the program, we have to send them away from Navient to studentloans.gov where they have to complete a 12-page application. They do it on the government’s website, either online or by printing it and filling it out. There are no edit checks in that process, so if a customer makes a mistake or selects the wrong program, it gets sent to us by the Department of Education. We then have to return it, tell the borrower they’ve made a mistake, fix it. All of those things are very time-consuming and complex. [...] We’ve asked the department to be able to co-browse with borrowers on the website to assist them in completing the application to make sure they complete it correctly. We’ve asked for the right to do verbal enrollment. We’ve argued extensively for simplification and received zero response or action .” Navient President and CEO Jack Remondi, Washington Post, January 23, 2017 Holger Mueller and Constantine Yannelis Navient Field Experiment
Field Experiment Navient: services over $300 billion in student loans for 12 million Direct • Loan, Federal Family Education Loan (FFEL), and private student loan customers. Largest student loan servicer in the country (2017). • Between April 12 and July 31, 2017, 7,319 FFEL borrowers were randomly assigned to two groups of call center agents. The agents modeled repayment options with the borrowers and pre-qualified eligible borrowers for the IDR program. Treatment agents: borrowers received pre-populated IDR applications by • email that could be signed and returned electronically. Control agents: borrowers had to complete the IDR application on their • own, either by applying online through the Education Department’s centralized application portal, or by printing, signing, and returning a completed paper application. Statistics Holger Mueller and Constantine Yannelis Navient Field Experiment
Field Experiment Random assignment: • Calls are routed through an automated Interactive Voice Response (IVR) • system, as is common in most call centers, that interacts with customers, gathers basic information, and then routes them to a call center agent. IVR system places borrowers in a holding queue until their call is • answered by the next available agent. Call center agents, in turn, do not know the identity of a caller before answering the call. Accordingly, borrowers do not get to pick which agent (treatment/control) they talk to, and vice versa. Agent Placebo Holger Mueller and Constantine Yannelis Navient Field Experiment
Empirical Strategy ff ff Intent-to-treat (ITT) effect of receiving pre-populated IDR applications: • � �� = � 0 + � 1 Treatment � + � 2 � � + � �� � where y it is an outcome for borrower i at time t , Treatment i is an indicator of whether borrower i was routed to a Treatment agent, and � �� � � X i is a set of pre-randomization (March 2017) covariates. � � � � �� Covariates: not necessary for obtaining unbiased estimate, but can • potentially improve power by accounting for chance differences ff between treatment and control groups. • Borrower age, citizenship, indicators for Census regions (West, Midwest, ff South, Northeast), principal amount disbursed, and indicators for whether the borrower is in deferment, in forbearance, or has subsidized loans. Holger Mueller and Constantine Yannelis Navient Field Experiment � �
� ffi � � � ffi � � ffi Empirical Strategy ff ff Local average treatment effect (LATE) of IDR enrollment on • borrower outcomes (monthly payments, new delinquencies, credit card balances): � �� = � 0 + � 1 IDR �� + � 2 � � + � �� � where y it is an outcome for borrower i at time t , and IDR it indicates � �� � � �� whether borrower i is enrolled in IDR at time t. � � � �� Exclusion restriction: receiving pre-populated IDR applications has • no direct effect on monthly payments, new delinquencies, or credit � � card balances, other than through its effect on IDR enrollment. �� � Holger Mueller and Constantine Yannelis Navient Field Experiment
Empirical Strategy Treatment – Control Balance Pre-randomization covariates (March 2017) Holger Mueller and Constantine Yannelis Navient Field Experiment
Empirical Strategy Treatment – Control Balance Pre-randomization outcome variables (March 2017) Coefficient on Treatment is marginally significant (at 10% level) in only one out of 14 regressions, consistent with what one would expect by chance if assignment is random. Holger Mueller and Constantine Yannelis Navient Field Experiment
IDR Take-Up 60.5% 26.6% 24% Holger Mueller and Constantine Yannelis Navient Field Experiment
IDR Take-Up Dependent variable: IDR enrollment in August 2017 Coefficient on Treatment: difference in mean enrollment rates between control and treatment groups in August 2017. Holger Mueller and Constantine Yannelis Navient Field Experiment
Monthly Student Loan Payments $273 $152 Holger Mueller and Constantine Yannelis Navient Field Experiment
Monthly Student Loan Payments Massive shift toward very low and zero monthly payments March 2017 Holger Mueller and Constantine Yannelis Navient Field Experiment
Monthly Student Loan Payments Massive shift toward very low and zero monthly payments March 2017 August 2017 Holger Mueller and Constantine Yannelis Navient Field Experiment
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