Texting Can Help Manage Student Debt

It’s hard getting millennials’ attention nowadays. With all the avenues for advertising, we are constantly being bombarded by different forms of media. For advertisers, this has been a daunting problem as their methods of promoting products and services are changing. Another – perhaps more important – issue other than advertising, is getting the attention of millennials when it comes to managing and paying their student debt. A new avenue for getting people to take action is texting. A cheap, easy, and widely used method that may have once been overlooked is now transforming into something that can have real results.

Defaulting on student loans is detrimental for a variety of reasons. The economy and country does worse when funds are not repaid. Much of the 1.3 trillion dollars in debt includes subsidized government loans. If hundreds of thousands of people default on these over an extended period of time, we are looking at another financial crisis in the works.

For the student, it has reverberating consequences as well, like a higher overall loan, the inability to get a mortgage on a house or to pay rent on an apartment, hurting your credit, and a slower start in entering the U.S. workforce. As those responsible for the future of our country, we need to examine ways that will reduce the occurrence of graduates not paying back their loans.

Here are three ways that the Social and Behavioral Sciences Team found texting can help manage student loan debt.

Getting There First

There’s a growing phenomenon in U.S. universities known as “summer melt,” which is where students who are admitted to a college don’t actually show up for the first day. According to Harvard research, this turns out to be around 20% of kids, mostly in low-income neighborhoods or backgrounds.

The reason behind this may be personal or family issues, but by and large can be attributed to the difficulties and deadlines that are required for someone to actually be admitted into school. This includes filling out necessary paperwork for the start of class, finishing the filing for financial aid, figuring out housing arrangements, and filling out forms for the university itself. All of these are easily preventable issues, usually handled by someone who has already attended a university like a parent. For a low-income family, the prospect that you are the first one to go to college may mean that the responsibility falls completely on your shoulders.

A report done by the Social and Behavioral Sciences Team found that out of a sample group of 4,882 students, sending simple reminders about filling out necessary forms and finishing paperwork improved the overall first day attendance rate by 8.6%. A similar report done in the U.K. found that by sending simple text message reminders to current students, dropout rates were reduced by 36%.

Reminders to Pay

Just like your cellphone company can remind you to pay your bill, your phone can also remind you about looming debt pay dates. The report also tested 55,000 borrowers by sending them simple e-mails that reminded them to pay their student loans. As the report found, sending the reminder resulted in nearly 30% more participants paying their loans off on time.

Indeed, as e-mail becomes more outdated, text opt-in reminders to pay your bill may become a trend that prevents late fees and accruing interest for those missed payments.

Income Driven Repayment Plans

Many of those who fall behind on their loans become frightened at the penalties that come with it. For many who graduated and were unable to find a high-paying job, this couldn’t be further from the truth.

The issue for many post-graduate students is that they find themselves in a place of financial crisis and student loans may fall on the back burner for more important upfront costs like housing and food. Many are unaware of the government assistance programs that could help them before their loan goes into default.

The report went on to test 840,000 borrowers who were over three months late on their payments. The results were astounding. Four times the amount of borrowers who received the information went to apply for an Income Driven Repayment plan. It seems in this instance, a lack of knowledge was the culprit behind people not paying back their debts.

Ultimately, no one who graduates college wants to fall victim to their student loans. For many, having to pay back a large debt prevents them from allocating and investing funds into their future. For this reason, lenders need to re-examine the ways we are trying to reach our students to payback their loans. A lack of information or knowledge is a key factor in the increase of defaults. If we want less of our population defaulting on loans, we need to make all the options readily available to them. If the issue lies in the methods that we are using to communicate, that needs to change as well.