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A Little Nudge Goes a Long Way: Helping Students Help Themselves

Using subtle reinforcements to influence student decision-making
University Business, December 2018

Nudge theory—using subtle reinforcements to positively influence behavior—is increasingly being implemented in higher education, having been proven to increase FAFSA completions, decrease summer melt and improve retention rates. Tiny “nudges” can result in big changes at any institution.

This webcast discussed nudge theory, and how it could benefit students and an institution as a whole. A director from Indiana University demonstrated how a simple letter nudged students toward better borrowing habits, and presenters discussed guidelines and ideas for using nudge theory in a variety of ways on any campus.

Speakers

Carissa Uhlman
Vice President of Student Success
Inceptia

Phil Schuman
Director of Financial Literacy
Indiana University

Carissa Uhlman: Behavioral finance is what helps us understand the separation between econs and humans. Or, why do we make less than optimal financial choices when we know better? Well, it’s because we are like Homer Simpson, not Spock. We are flawed.

We use a lot of mental shortcuts when we make decisions, or “heuristics.” There are four relevant examples for the work we do with students.

1. Anchoring. You’re presented with a dollar price point that is overinflated, so when you’re presented with a lower dollar amount, your brain automatically assumes you’re getting a good deal.

2. Framing. Would you rather have a 10 percent chance of mortality or a 90 percent chance of survival? It’s the same statistic, just reversed. So why does everybody choose the latter of the two? Because in our minds, it seems better—90 percent is greater than 10 percent.

3. Loss aversion. This pertains to financial education. The pain that we experience from losing something is always going to feel greater than our pleasure from gaining something.

4. Status quo bias, or inertia. This is simply saying human beings are pretty lazy animals—we usually take the path of least resistance, especially when it comes to complex decision-making.

By going through these heuristics, it becomes easier to understand the need for nudges. A nudge is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.

We all participate in nudges. If you have sent an email on Tuesday instead of Friday to increase the odds of it being read, you are a “choice architect.” Being aware of and intentional about how you structure student choice is the root of ethical nudging.

To implement a nudge, first think about incentives, then understand the mapping. Think about default, give feedback, expect error and then structure complex choices.

Nudging is great for students since they have tons of decisions to make and not a lot of time to make them.

Phil Schuman: Our university wanted to put together tools to help students lessen their financial burdens. We also wanted to focus on degree completion, which also helps students lessen their financial burdens, and on students making smart financial decisions through education. Since launching this effort in 2012, we’ve seen a student debt reduction of $112.8 million or about 17 percent.

We send out a communication piece to students who have borrowed money every year, so they understand how much debt they have and the projected interest rate associated with that. We also give them a projected monthly payment plan for after they graduate.

This is where nudges come in. We’re not telling them to do anything. We are providing them with this information, and saying, “All right, do whatever you want with this information.” Some students will choose to change their borrowing habits and some will choose to do nothing, and that’s fine. We don’t want nudges to be invasive.

Debt letters do not contribute to lower borrowing levels; they do, however, contribute to higher levels of contact between students and financial aid offices, which is a crucial component to all of this. We are nudging students to make more contact to learn more about student loans.

We built a calculator that lets people navigate through the cost of college to see if we can get them to nudge their cost to a lower level. It shows the effect of applying decisions in real time, and that leads them toward making smarter, more informed decisions. We’re trying to nudge students in the right direction.

To watch this web seminar in its entirety, please visit universitybusiness.com/ws102418