Over half of student loan borrowers (around 25 million people) owe less than $20,000 , but they have higher default rates than the borrowers who owe more . The student borrowers with over $100,000 in federal student debt ( about 7 percent of borrowers ) are, in fact, the least likely to default on their loans. Misunderstanding the problem leads us to apply misguided solutions.

There’s little question that the United States has a student loan crisis — what’s up for debate is how to fix it. The issue is that most of us are looking at the wrong problem.


Multiple programs allow student loan borrowers to stay in good standing on their federal student debt regardless of their income or lack thereof. For example, there are options that allow borrowers to peg their monthly payments to a percentage of their discretionary income, known as income-driven repayment. According to the Consumer Financial Protection Bureau, fewer than 10 percent of borrowers who defaulted on their loans and then enrolled in an income-driven repayment plan defaulted a second time. But 90 percent of the highest risk borrowers are not enrolled in this type of plan, and nearly half of them default again within three years. The mere existence of such programs and policies doesn’t guarantee that they are used, and millions enter default every year without taking advantage of them. The behavioral science firm where I serve as executive director, ideas42, recently investigated the barriers to leveraging these programs and resources.

We found that the majority of borrowers intend to repay their loans, but there are often overlooked factors keeping them from following through. The repayment process is complex. It has many phases and logistical elements to wrangle involving multiple parties, some of which students have no relationship with (such as loan servicers) prior to their departure from school.


Consider Carmen (not her real name), a first-generation college student who graduated from a state college last year with federal and private student aid. She has two jobs and has made all of her private student loan payments on time. When she received bills from a company called Great Lakes, she believed it was a scam because she’d never heard of it. It turned out that Great Lakes was her federal loan servicer, and she went into default because she didn’t make the payments. This was a case of simple human error, not irresponsibility, and it is not uncommon. That’s why we need to design a student loan repayment experience that accounts for how humans actually interact with information.

This story illustrates just one of the many behavioral barriers to successful loan repayment. Carmen probably was notified that Great Lakes would be her provider — buried within an e-mail form, which was buried in her inbox. A simple checklist for loan repayment delivered when Carmen left school, with reminders sent via e-mail, mail, and text message about her servicers could have helped make the message more salient.

And then there’s the repayment process. For example, the six-month grace period after leaving school is a well-intentioned attempt at helpful policy, but our research showed that by six months after graduation, borrowers have already established spending habits, making it more difficult to pay their loans.

Additionally, borrowers are automatically assigned a 10-year repayment plan. It’s possible for them to change it, but people tend to stick with default options. They may not know they can switch it to a shorter or longer loan term, or how to do so.


Colleges and universities, the US Department of Education, loan servicers, and banks — each has a responsibility to reduce hassles and administrative barriers to help student borrowers stay out of default. The Department of Education can make it easier for borrowers to share their data safely with federal loan processors. Schools can shift away from perfunctory exit loan counseling and instead provide actionable departure checklists and simple reminders that set students up for success well after they’ve left college.

Policy change or an overhaul of how we approach the funding of college in the United States would, of course, play a massive part in avoiding this type of default crisis in the future. But correcting false assumptions about the causes of the crisis and simply taking into account our predictable human quirks in the design of programs and services is an action that decision-makers in the education field can take now to help millions of students like Carmen protect their financial futures. As it stands, America’s $1.6 trillion student loan debt crisis is forcing young people to put off marriage and children, buying a home, even saving for retirement — impacting the greater economy. By creating more efficient student loan repayment options, we as a society will create a better economic future for the next generation — and the nation as a whole.


Josh Wright is executive director of ideas42 and an adviser to Nickels.