Are there ways to limit the accrual of excessive loan amounts by students? A letter sent to students with student loans who have received a supplementary grant increases the likelihood of them reducing their loan amounts. This increased likelihood translates to an annual average decrease of over € 150 in loan amounts for students receiving both a supplementary grant and a loan.

Why this experiment was conducted: award of supplementary grant sometimes has little or no impact on loan amount
Previous nudge projects carried out by the Ministry of Education, Culture and Science and DUO aimed at reducing the number of students who fail to apply for a supplementary grant have shown that a proportion of students do not adjust their loans on being awarded a supplementary grant, or they do so by a lower amount than the amount of the supplementary grant. As a result, these students may accumulate more student debt than is necessary. What steps can be taken to change this situation?

Type of intervention: letter featuring behavioural techniques
The intervention concerned a letter urging students to consider whether their student loan was still a good ft for them. See image 26. The letter incorporated various behavioural techniques, including:
• personalise: e.g. opening with 'Dear Kees' and mentioning concrete amounts for that student
• make it easy: including a step-by-step plan
• add deadline: 'Make sure you do this by December 31 at the latest!'
• appeal to aversion to loss: 'Reducing your loan amount now means you'll have less student debt and have to pay back less later'

Method used: RCT
A Randomised Controlled Trial was conducted to examine the impact. In this trial, half of the target group received the letter featuring behavioural techniques while the other half did not receive any letter (the control group). The participants in the trial were randomly allocated to one of the two groups. A total of 1,331 students who received a supplementary grant for the first time in 2021 and who have interest-bearing student loans took part in this experiment.

Result obtained: one-third rise in student loan reductions
The letter resulted in significantly more downward adjustments of the interest bearing loan: 18.9% vs. 14.2% in the control group. This is shown in figure 29. Adjusted for minor differences in background characteristics, this represents a 4.6 percentage points increased likelihood of a downward adjustment. Relative to the control group, this represents a 33% increased probability of such an adjustment. The average adjustment of the monthly loan amount is € 13 higher in the letter group than in the control group. This is a statistically significant difference, even after adjustment for differences in background characteristics. In relative terms, the adjustment in the loan amount is twice as high in the letter group than in the control group: -€ 25.14 vs. -€ 12.54. This difference is not attributable to larger downward adjustments (which are the same in both groups), but because students in the letter group are more likely to adjust their loan amounts downward than students in the control group. On an annual basis, this would equate to over € 150 less being borrowed as a result of the letter intervention.

Impact: more conscious borrowing behaviour through relatively low-cost intervention
This nudge project shows that a relatively low-cost intervention can be effective. The letter resulted in more downward adjustments of the interest-bearing loan for new recipients of the supplementary grant, and hence to reduced student debt. The intervention therefore seems to encourage more conscious borrowing behaviour.

Source: https://www.binnl.nl/home+-+en/knowledge/publications/bin+nl+publications/HandlerDownloadFiles.ashx?idnv=2719979