The Nudge and Student Loans

Various studies have indicated that “nudging” students at the right time during the semester, offering reminders of deadlines or offers of help, can keep them in school. This can be accomplished easily through social media, of course. An app for the nudge recently got the favor of the University of Houston, as reported in the Houston Chronicle by Lindsay Ellis. You can find details in the piece.

There is another interesting possibility. A new study by the National Bureau of Economic Research found remarkable gains in completion and subsequent transfer by students at two-year colleges who had been nudged towards “relatively modest” student loans, as opposed to students to whom loans weren’t mentioned, as reported by Matt Reed, in Inside Higher Ed.

Obviously we want to be careful here, given the number of students and former students with massive debt. Nudges about loan availability can be perceived like the ads for Mercedes and Lexus cars as Christmas presents, with a big bow on top. A moment of weakness in a person with a serviceable Chevy can bring a major financial hangover after the holidays. (Keep the Chevy, Dude. Get her flannel pajamas for Christmas. Just saying.) But even a small loan offer can apparently produce results.

The effectiveness of “modest” loans in keeping students in school, when mentioned to students on the “at risk” edge of life, underscores how financial aid can make a big difference. When students drop out, much of the time it has nothing to do with rigor or curriculum. It’s about basic needs like shelter, transportation, and living costs, especially for students with children. A notification during the semester, when things get scary, that help is available, might do the trick.

Nudges generally can be viewed as overly maternalistic, in the sense of Mommy reminding you to make your bed in the morning. Part of the goal of higher education is, or should be, accepting personal responsibility. But the key takeaway from the NBER study is the importance of well-informed and targeted financial aid reminders to students. It wouldn’t necessarily have to be a loan.

But first the aid must be there waiting.