Digest No. 05 - October 2018

The Influence of Debt Letters on Student Borrowing Choices

Darolia, R., and C. Harper. 2018. “Information Use and Attention Deferment in College Student Loan Decisions: Evidence from a Debt Letter Experiment.” Educational Evaluation and Policy Analysis 40 (1): 129–150.


As the public outcry concerning college affordability increases, institutions are expanding their efforts to provide students with necessary information to make more informed college choices. One popular effort involves sending students a debt letter that articulates financial information in accessible ways. This study evaluated the influence of debt letters on students’ borrowing choices.
Through an experimental design studying 9,802 undergraduate students enrolled at the University of Missouri, the authors were able to determine if debt letters actually changed students’ borrowing choices. They randomly assigned half of all non-graduating students who had borrowed in a prior year to two groups: the experimental groups where students received “individually tailored letters that included a summary of borrowing to date, an estimate of expected future monthly debt payments and data on the typical borrowing of their peers” (pp. 129–130) and the control group, where students received no additional information regarding their borrowing activity. The authors compared the two groups to determine whether the letter effectively changed students’ borrowing behaviors.
To extend this experiment, the authors examined whether debt letters were more effective in informing borrowing decisions of first-generation students, Pell Grant recipients, and students with lower grade point averages as well as whether the information affected the borrowing decision based on students’ academic major or class standing (for example, sophomores versus juniors). In addition, the authors created a variable to account for the intensity with which students borrowed: “(a) Low borrowing includes students with no loans in the prior year or prior year loan amounts of up to and including the subsidized loan amounts; (b) Moderate borrowing includes students with prior year loan amounts greater than the subsidized loan limit up to and including the total annual federal direct loan limit; and (c) High borrowing includes students with prior year loan amounts greater than the annual federal direct loan limit” (p. 137). The authors examined all of these variables for their effects on the relationship between debt letter receipt and borrowing choices.

In addition to this experimental approach, the authors also conducted semi-structured interviews with 27 students to explore themes related to the use of debt letters to inform decision making about borrowing.


Receiving a debt letter did not influence students’ borrowing choices. In the authors’ words, “We do not find evidence that the information letter affects the average amount that students borrowed” (p. 137). Turning to the additional analyses, debt letters had no significant effect on the borrowing choices of students based on any of the subgroup characteristics (namely, first-generation students, Pell Grant recipients, students with lower grade point averages, academic majors, class standing, or varying levels of borrowing intensity). On a brighter side, the authors did find that receiving the debt letter appeared to motivate students from the treatment group to schedule a meeting with a financial aid officer: Students who received the debt letter were 2 percentage points more likely to seek out help from a financial aid officer. It appears that information alone—at least as delivered in a debt letter—is not enough of a motivator to change student borrowing choices.
The follow-up interviews provided some reasons why debt letters may have been ineffective. The authors found that students were either in denial about their borrowing behavior (for example, “I don’t have to worry about it until I leave, so I don’t really, I don’t really think [the letter] helps”), or depressed due to the information provided in the letter (“[the letter] just kind of depressed me, because of how much money I have taken out…maybe I should take out less, but I don’t”).

Other important insights emerged from the interviews as students explained their response to the debt letters. First, students explained that they did not understand borrowing, even when provided data regarding borrowing and its short- and long-term effects on students’ economic outlooks. Second, students often ignore communications from the institution since they are bombarded with so much information from the university at any given time.


Several implications from this study are noteworthy. First, information alone—when delivered in the form of a debt letter—does not change borrowing behavior. This does not mean that information about borrowing is not important; it simply indicates that using a debt letter to communicate this information may not be effective and, in some cases, may be doing more harm than good. So what works? How do campus leaders responsibly educate their students about borrowing?
Many of the authors’ recommendations require more investment in financial aid offices, which the authors admit “could prove challenging for financially-restrained institutions” (p. 143). First, institutional leaders need to find a way to differentiate important messaging since some students report that they cannot determine what correspondence is most important.
Second, institutions should require college students to take courses on financial health and literacy, where instructors teach specific information about borrowing and its effects on quality of life. Some CIC institutions have introduced innovative financial literacy programs (as illustrated in Innovation and the Independent College: Examples from the Sector) and may serve as model programs for these sorts of initiatives.

About the Authors

Rajeev Darolia is associate professor of public policy at the University of Kentucky.

Casandra Harper is associate professor of higher education at the University of Missouri.

Literature Readers May Wish to Consult

Council of Independent Colleges. 2018. Innovation and the Independent College: Examples from the Sector.

Dynarski, S. M., and J. E. Scott-Clayton. 2013. “Financial Aid Policy: Lessons from Research.” Future of Children 23: 67–91.

Tierney, W. G., and K. M. Venegas. 2009. “Finding Money on the Table: Information, Financial Aid, and Access to College.” Journal of Higher Education 80: 363–388.

Walsemann, K. M., G. C. Gee, and D. Gentile. 2015. “Sick of Our Loans: Student Borrowing and the Mental Health of Young Adults in the United States.” Social Science & Medicine 125: 85–93.