A First Step in Fixing Student Loans: Better Branding

Earlier this week the Lumina Foundation, which focuses exclusively on higher education, released 15 different papers on revamping the way people pay for college. The ever-growing problem of student debt is vexing and complex, and the studies grappled with everything from how to structure loan programs to ways to reduce the cost of school in the first place. But I figured I’d start with one modest proposal: changing the names and descriptions of the plans meant to help those struggling to make student loan payments.
There is a dizzying array of repayment options now available. The plans, despite some downsides, can be quite helpful. While sign-ups for the assistance programs have improved, not as many people are using the programs as policymakers would like. A new paper (PDF), from Angela Boatman and Brent Evans of Vanderbilt University and Adela Soliz of the Harvard Graduate School of Education, evaluates the situation using behavioral economics and urges the Department of Education to deploy the “persuasive power of framing.” To start, the researchers suggest, simply change the language used to name and describe the programs to focus more on how they can help borrowers.
There are seven main repayment options for federal student loans that vary in their requirements and terms. Several have very similar names. Just look at this list:

Income-Based Repayment
• Income-Sensitive Repayment

Income-Contingent Repayment
• Pay as You Earn Repayment

There’s a lot of talk about reducing the options, but the new paper believes that whatever set of plans remains needs better descriptive language. The current style of names is “unnecessarily technical” and doesn’t highlight the benefits of the programs, such as “protecting [student] credit histories by preventing default.” The researchers propose some ideas for what the new names could be:

“Pay as You Earn and Protect Your Credit,” which they say is long but provides a sense of the benefit as well as how the program works
“Default Insurance,” which is simple and implies the idea of protection
“Default Protection Repayment,” which is even more explicit on the benefit

The paper cites other research (PDF) that found student borrowers cling to ways the descriptions of the programs highlight the downsides—namely, that some borrowers could end up paying more interest over time because the terms of their loans are extended. “Studies in behavioral economics examining preferences for medical treatment options find that patients prefer gain-framed treatments over loss-framed treatments,” the researchers write.

The same idea could be used for student loans. While overall the plans can make the loans more expensive, they can still help people in need because they let borrowers “have more money in their pockets each month.” It’s a description that offers clarity, at least, regardless of whether policymakers change the structure or number of programs at all.

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