WFSN in Community Colleges Financial Services and Asset Building Prototypes
Webinar Panelists Sarah Griffen, Consultant Ashvin Prakash, CFSI Nancy Castillo, CFSI Wendy De La Rosa, Irrational Labs Susan Gewirtz, Consultant
Webinar Goals Review six financial prototypes developed by CFSI and Irrational Labs Establish process for indicating interest and selection process for colleges to participate and receive TA to implement prototypes
The WFSN strategy The WFSN strategy involves intentionally integrating and sequencing three distinct but related priorities: 1. Education and employment advances education, job readiness, training, and placement 2. Income and work supports access to student financial aid, public benefits, tax credits, and free tax assistance 3. Financial services and asset building financial education and coaching linked to affordable products and services to help families build self-sufficiency, stabilize their finances, and become more economically competitive
Financial health for community college students Improving the financial health of students has the potential to improve their ability to pursue educational attainment and achieve greater success. Elements of Financial Health Day to Day Management Resilience to weather ups and downs Long-term Opportunity Enable students to manage their money effectively, pay bills and conduct transactions easily, and live within their means. Ensure students have access to appropriate savings or financial cushion to deal with unexpected shocks. Provide a pathway to continued financial stability and growth. Students practice better financial behavior and are more financially capable, enabling them to tackle financial challenges that may otherwise hinder their ability to progress through their classes.
Behavioral barriers students face Psychology of Money Mental Accounting Opportunity Cost Neglect We categorize and treat money differently depending on where it came from and where it is going We fail to recognize what we are giving up when we make spending decisions Psychology of Choice Hyperbolic Discounting Default Bias We put an unrealistically high value on the here and now and an unrealistically low value on the future We tend to make the easiest choice possible - often by not doing anything Choice Overload We tend to not act when faced with too many choices
Barriers to achieving financial health In improving the overall financial health of students to increase completion rates, Achieving the Dream will focus on identifying strategies to tackle the following three challenges. Core Financial Challenges Elements of Financial Health Inability to manage cash flow Day to Day Management Lack of a financial cushion Resilience to weather ups and downs Ability to build credit Long-term Opportunity
Prototype ideation To identify unique challenges faced by community college students and brainstorm solutions that are feasible, viable, and sustainable for community colleges to implement, the project team leveraged the following resources: Webinar with community colleges Community college survey In-depth interviews with 8 community colleges Half-day working session with 7 community colleges Based on the resources leveraged, the project team has identified 6 prototypes aimed to address the financial challenges faced by community college students, empowering them to overcome barriers to course completion.
Overview of prototypes Prototype 1/ Modifying distribution of financial aid Challenge addressed Inability to manage cash flow 2/ Renaming financial aid refunds Inability to manage cash flow 3/ Providing emergency grants or loans with vehicle for future cushion Lack of a financial cushion 4/ Automatic allocation to savings Lack of a financial cushion 5/ Credit building tools Ability to build credit 6/ Improving Financial Literacy efforts Inability to manage cash flow/ Lack of a financial cushion/ Ability to build credit
Prototype 1: Modifying distribution of financial aid Current challenge Students are receiving lump payments of their financial aid at the beginning of each semester. This is a significant source of income for many students, and we find that many students are unable to budget the funds accordingly to last them the full length of the semester, leaving them financially vulnerable towards the end of the semester. Proposed solution By dividing up the funds into separate payments, students will be better positioned to manage their monthly spend to align with their income, improving their overall financial health and budgeting capabilities. Outcome: Students have a more consistent cash inflow, enabling them to make smarter spending decisions.
Prototype 1: Modifying distribution of financial aid What this looks like Students receive multiple disbursement of financial aid over the course of the semester Implementation tactics Consider partnering with a third party financial institution to hold funds and administer monthly payments Create barriers to opting out of program (need to meet with financial advisor to receive full amount) Key requirements Sizeable student financial aid refund ($500+) Capability and capacity to administer Strong financial institution partner Student and administration buyin
Prototype 1: Modifying distribution of financial aid - detail Construct Delivery channel Requirements Measurable impact Engagement strategy Issues for consideration Multiple disbursements of financial aid over the course of the semester Financial aid office or third party financial institution Sizeable student financial aid amounts ($500+) Student and admin buy-in Capacity/ infrastructure to process multiple payments OR financial institution partner willing to hold and release deposits Two consecutive semesters to measure impact % of students receiving modified financial aid distribution who complete semester vs. % of students who are not receiving financial aid distribution % of students receiving modified financial aid distribution who request emergency financial assistance vs. % of students not receiving modified financial aid distribution Pre and post survey on spending and savings behavior between those receiving multiple disbursements vs. those not Have as default option for students receiving financial aid disbursements (require those who want the full amount to opt-out) Have financial service partner on-site during disbursement to enroll students into a checking account Connect roll-out to financial education curriculum Deliver at end of month What is the right frequency for your school? How can you ensure students are still enrolled before making disbursements through the quarter? Administrative costs?
Prototype 2: Renaming financial aid refunds Current challenge Students are receiving refunds from their Pell grants or scholarships at the beginning of each semester. However, the term refund is a term associated with free money or plush funds. It does not encourage good financial decision making. These refunds make up a large percentage of a student s income. Proposed solution By renaming refunds from financial aid to another term that triggers feelings for conservative spending, like reserved education income, we can nudge students to make better financial decisions with relatively little effort. Outcome: Students view their refunds as a source of income and spend more cautiously.
Prototype 2: Renaming financial aid refunds What this looks like Rename the financial aid distribution Potential options include: Allocation Education reserve Reserved income Stipend Implementation tactics Rebrand refund language through all communication channels Key requirements Majority of students currently receiving refunds Capacity to rebrand language throughout all communication channels
Prototype 3: Providing emergency grants or loans with vehicle for future cushion IRRATIONALLABS Current challenge Students faced with financial emergencies lack access to financial cushions, either through affordable and high-quality emergency loan products, grants, and/ or savings cushions. As a result, students are unable to cope with unexpected expenses and many drop out because they cannot afford to stay in school. Proposed solution Provide students with emergency grants or loans to cope with expense shocks. Tie in a mandatory Financial Action Plan session so that students can have a mechanism to build a cushion for the future. Outcome: Students have access to a cushion when needed, and are better positioned to handle future shocks.
Prototype 3: Providing emergency grants or loans with vehicle for future cushion IRRATIONALLABS What this looks like Colleges identify funds to grant to students facing financial hardships Upon delivering emergency funds to student, students are required to complete a financial action plan and commit to ongoing savings Implementation tactics Inform students of program through standard resources guide already used by college If possible, deposit an extra $50 into a savings account on behalf of the student, who can then access it after they have completed the financial action plan Key requirements Ability for college to identify grant funds
Prototype 4: Automatic allocation to savings Current challenge Many community college students do not have savings, leaving them financially vulnerable. There is a need to help students increase their ability to save. Proposed solution Automatically deposit 10% of a student s refund into savings. Outcome: Students have increased savings by eliminating barriers to action.
Prototype 4: Automatic allocation to savings What this looks like Split financial aid distribution into two checks 90% for their regular distribution, 10% for savings Deposit 10% check directly into a student s savings account Implementation tactics Create savings account for students Have financial institution on-site when refund is disbursed for easy access to set up a savings account Create barrier to opt-out (need to meet with financial counselor) Key requirements Sizeable student refund ($500+) Strong financial institution partner Student and administration buyin
Prototype 5: Credit building tools Current challenge Students today with damaged credit profiles or no credit score are forced to rely on payday and auto-title loans, which are often loaded with high-fees and lead to a cycle of debt. Proposed solution By providing a low-risk credit building tool, students can improve their credit ratings over the course of a few months, improving their ability to access mainstream credit products to better manage financial emergencies. Outcome: Students have a pathway to improve their credit and ability to access highquality financial products in the future.
Prototype 5: Credit building tools What this looks like College to partner with financial institution to offer credit builder loans (student makes monthly deposits of $30, at the end of semester the balance is returned to them and have received positive credit reporting) College to partner with financial institution to offer secured cards Implementation tactics Position credit builder loan as a end of semester savings program, with added benefit of improving credit Leverage a portion of a student s aid as collateral for secured card Tie with financial education around credit, and promote program through financial literacy courses Key requirements For employed students seeking to rebuild or establish credit Strong financial institution partner Student buy-in and authorization
Prototype 6: Improve Financial Literacy efforts Current challenge: Financial literacy alone, with out actionbased interventions, do not change students financial behaviors. Proposed solution Integrate behavior based action plans into current financial literacy efforts. Outcome: Student s become better financial actors by adopting behaviors promoted through sessions.
Prototype 6: Improve Financial Literacy efforts What this looks like Rename Financial Literacy Programs to Financial Action Plan Tie lessons to concrete actions (e.g. opening a savings account, create budget) Time delivery of information based on student s financial lifecycle Implementation tactics Make session mandatory for first time students Key requirements Capacity to administer and deliver session
Recap of prototypes Prototype For colleges that 1/ Modifying distribution of financial aid Distribute sizable ($500+) refunds to a large portion of students 2/ Renaming financial aid refunds Distribute refunds to students 3/ Providing emergency grants or loans with vehicle for future cushion Offer emergency assistance to students or have a strong financial institution partner 4/ Automatic allocation to savings Distribute sizeable refunds to students 5/ Credit building tools Have grant funds or sizable refund, high percentage of employed students, and a strong relationship with a financial institution partner 6/ Improve Financial Literacy efforts All
Long-term goals of prototypes Students are better financial actors, and empowered to pursue their goals and aspirations. Improved student financial health Colleges provide valuable financial resources and guidance to improve financial livelihoods of students. Improved operational efficiency Students are better positioned to weather emergencies and avoid cash shortages that may have prevented them from course completion in the past. Higher completion rates Fewer costs associated with financial aid repayment can result in cost savings for school.
WFSNCC Prototypes WFSNCC colleges have the opportunity to receive technical assistance and a small amount of funding to support prototype development. Prototype Period: January June 2015 At least one prototype per state Balance of kinds of prototypes, including those easier and more challenging to implement 4-6 colleges will be supported with TA Up to $10,000 per college for direct costs to implement and test
Selection Process Webinar: October 30 Letter of Interest: November 15 Exploratory/Assessment Calls: Completed by December 1 Colleges selected: December 10 TA to selected colleges: December and January Prototype plans completed by: January 30 Implementation begins: February 1
Due November 15 One page letter Letter of Interest Identify category of prototype One paragraph statement of why prototype is of interest Sign-offs from relevant departments Point person identified Willingness to participate in exploratory/assessment conversation with member of TA team
Q&A
Appendix
Prototype 1: Modifying distribution of financial aid - Overview Goal: Improve the way students spend their financial aid refunds by restructuring the delivery of funds. Current challenge: Students are receiving lump payments of their financial aid refund at the beginning of each semester. This is a significant source of income for many students, and we find that many students are unable to budget the funds accordingly to last them the full length of the semester, leaving them financially vulnerable towards the end of the semester. Proposed solution By dividing up the funds into separate payments over the course of the semester, students will be better positioned to manage their monthly spend to align with their income, improving their overall financial health and budgeting capabilities. Constructs Applicable to Design considerations Behavior Economic Principles Utilized Multiple disbursements of refund over the course of the semester Deliver refund amount over multiple disbursements to students Colleges currently delivering one-time distribution of financial aid Colleges with typical refund distributions exceeding $500 Colleges with infrastructure/capacity to administer multiple payments Partner with third party financial service provider to hold refund deposits and administer refunds over the course of the semester Reducing mental accounting biases by -bucketing money on the behalf of students Eliminating hyperbolic discounting by delivering funds over multiple time periods
Prototype 1: Modifying distribution of financial aid - Detail Construct Delivery channel Requirements Measurable impact Engagement strategy Issues for consideration Multiple disbursements of financial aid over the course of the semester Financial aid office or third party financial institution Sizeable student refund amounts ($500+) Student and admin buy-in Capacity/ infrastructure to process multiple payments OR financial institution partner willing to hold and release deposits Two consecutive semesters to measure impact % of students receiving modified refund distribution who complete semester vs. % of students who are not receiving refund distribution % of students receiving modified refund distribution who request emergency financial assistance vs. % of students not receiving modified refund distribution Pre and post survey on spending and savings behavior between those receiving multiple disbursements vs. those not Have as default option for students receiving Pell refund of scholarship disbursements (require those who want the full amount to opt-out) Have financial service partner on-site during disbursement to enroll students into a checking account Connect roll-out to financial education curriculum Deliver at end of month What is the right frequency for your school? How can you ensure students are still enrolled before making disbursements through the quarter? Administrative costs?
Prototype 2: Renaming financial aid refunds - Overview Goal: Improve the way students spend their refund/scholarships by renaming the refund. Current challenge: Students are receiving refunds from financial aid at the beginning of each semester. However, the term refund is a term associated with free money or plush funds. It does not encourage good financial decision making. These refunds make up a large percentage of a student s income. Proposed solution By renaming financial aid refund to another term that triggers feelings for conservative spending, like reserved education income, we can nudge students to make better financial decisions with relatively little effort. Potential Constructs Applicable to Design considerations Behavior Economic Principles Utilized Rename the Refund to Allocation Rename the Refund to Education Reserve Rename the Refund to Reserved Income Colleges currently delivering financial aid refunds Colleges with typical refund distributions exceeding $500 Colleges with infrastructure/capacity to change all communications (emails, website, financial aid advisors) Consider your financial advisor training and how it needs to be updated to reflect this change in wording Reducing mental accounting biases by -bucketing money on the behalf of students New term triggers thoughts on opportunity costs
Prototype 2: Renaming financial aid refunds - Detail Construct Delivery channel Delivery type Requirements Measurable impact Engagement strategy Issues for consideration Rename the refund. Potential options may include: [reserved income, education reserve, allocation] Financial aid office Business Services office Email, Website, Printed Materials, Verbal Sizeable student refund amounts ($500+) Student and admin buy-in Capacity/ infrastructure to process to change all communications Two consecutive semesters to measure impact % of students receiving [reserved income] who complete semester vs. % of students who are receiving a refund % of students receiving [reserved income] who request emergency financial assistance vs. % of students who are receiving a refund Pre and post survey on spending and savings behavior between those receiving [reserved income] vs. those not Create a consistent message around the [reserved income] Train all financial advisors and business services administrators to discuss the refund as a [reserved income] Connect roll-out to financial education curriculum What other ways can you rebrand the refund? How can you ensure that financial advisors are using your updated language? Administrative costs?
Prototype 3: Providing emergency grants or loans with vehicle for future cushion - Overview IRRATIONALLABS Goal: Ensure students have access to financial cushions to deal with unexpected expense shocks, and build a cushion through savings. Current challenge: Students faced with financial emergencies lack access to financial cushions, either through affordable and high-quality emergency loan products, grants, and/ or savings cushions. As a result, students are unable to cope with unexpected expenses and many drop out because they cannot afford to stay in school. Proposed solution: Provide students with emergency grants or loans to cope with expense shocks. Tie in a mandatory Financial Action Plan session so that students can have a mechanism to build a cushion for the future. Constructs Applicable to Design considerations Tie mandatory mechanism to existing offering Colleges that already offer grants or loans Establish tracking mechanism to hold people accountable for attending session. Behavior Economic Principles Utilized Develop a grant or loan fund and tie in mandatory mechanism to offering Colleges with infrastructure/cap acity to identify funds and administer grants or loans For loan, consider repayment via financial aid refund and/or community service hours
Prototype 3: Providing emergency grants or loans with vehicle for future cushion - Detail IRRATIONALLABS Construct Delivery channel Requirements Measurable impact Engagement strategy Issues for consideration Tie mandatory mechanism to existing offering Develop a grant or loan fund and tie in mandatory mechanism to offering Office that handles loans or grant Financial education mechanism Student and admin buy-in Capacity/ infrastructure to process loans or grants. Two consecutive semesters to measure impact % of students who in an emergency received loans/grant who complete semester vs. % of students who in an emergency did not receive who complete semester. % of Pre and post survey on savings behavior (length of time, amount saved) between those receiving loan/grant with savings vs. loan/grant without savings Instances of other types of loan products [credit cards, payday loans] used by students who received the loan/grant vs students who did not, or compared to if student did not have access to the loan/grant. Make mechanism to build a cushion a requirement of grant/loan Connect roll-out to financial education curriculum How to communicate the loan/grant to students? How to communicate cushion mechanism aspect to students? Administrative costs What are the right impact to loss rates for your college?
Prototype 4: Automatic allocation to savings - Overview Goal: Increase savings behavior by automatically directing part of the refund to a savings account. Current challenge: Many community college students do not have savings, leaving them financially vulnerable should any emergency occur. Thus, there is a need to help students increase their ability to save. Proposed solution Assign 10% of a student s financial aid refund to a savings account. If a student wishes to opt-out of the program, they would need to make an appointment with a financial aid advisor. Constructs Applicable to Design considerations Behavior Economic Principles Utilized Allocate 10% of refund to a savings account Colleges with typical financial aid refund distributions exceeding $500 Colleges with the capacity to distribute funds electronically Partner with third party financial service provider to help students create a savings account Harness the power of default students into saving Reduce choices to make financial decision making easier Provide a check for 10% of financial aid refunds, reassigned to savings Colleges with typical financial aid distributions exceeding $500 Colleges without the capacity to distribute funds electronically Partner with third party financial service provider to help students create a savings account at the point of delivery
Prototype 4: Automatic allocation to savings - Detail Construct Delivery channel Delivery type Requirements Measurable impact Engagement strategy Issues for consideration Allocate 10% of aid to a savings account Provide a check for 10% of the financial aid refund, reassigned to savings Financial aid office or business service office [dependin g on college] Electronic Distributi on of funds to a Checking and a Savings Account Separate Check or prepaid cards Sizeable student refund amounts ($500+) Student and admin buy-in Capacity/ infrastructure to process electronic or check payments Financial institution partner willing to provide savings accounts Two consecutive semesters to measure impact % of students who complete semester vs. % of students who opted out % of students who request emergency financial assistance vs. % of students who opted out Pre and post survey on spending and savings behavior Have a financial institution partner on-site during disbursement to enroll students into a checking / savings account Connect roll-out to financial education curriculum Deliver at end of month Ask that students meet with a financial advisor if they want to opt out What is the right savings % for your school? Administrative costs?
Prototype 5: Credit building tools - Overview Goal: Provide pathway to improved credit to help improve access to high-quality financial services in the future. Current challenge: Students today with damaged credit profiles or no credit score are forced to rely on payday and auto-title loans, which are often loaded with high-fees and lead to a cycle of debt. Proposed solution By providing a low-risk credit building tool, students can improve their credit ratings over the course of a few months, improving their ability to access mainstream credit products to better manage financial emergencies. Constructs Applicable to Design considerations Secured credit card Leverage a portion of a financial aid or grant funds as collateral for a secured credit card Credit builder loan Have students make monthly deposits over the semester that are reported to credit bureaus, with funds returned to student at end of semester IRRATIONALLABS Colleges with financial institution partners who offer secured cards and credit builder loans Students with steady income and credit repair need Partner with third party financial service provider to administer products Consider easy enroll options when students are receiving their refund Integrate into financial coaching and literacy classes for credit building opportunities College to hold a portion of financial aid to make automatic deposits on behalf of student Position as a savings vehicle that enables students to build credit Opportunity to match contributions
Prototype 5: Credit building tools - Detail Construct Delivery channel Requirements Measurable impact Engagement strategy Issues for consideration Secured credit card Credit builder loan Financial institutions (referenced through Financial Literacy classes) $300-$500 in student refund or grant to fund initial security deposit Student must have steady income streams for repayment Student must be able to make monthly deposits of $25-$50 Credit improvements for students who engage with product % of students who utilize product and complete semester vs. % of students who do not engage with product and complete semester Offer at point of refund or when in emergency Highlight benefits and usage through well timed financial literacy program Opportunity to offer IDA like match to those who complete program Position as savings program, where students forgo receiving funds today to receive more in the future, in addition to improving their credit score Community college to hold funds and make payments on behalf of students Need to ensure selection of a high-quality product with low fees and APR Need to deliver adequate financial education to students prior to utilizing card Can colleges make loan payments on behalf of students? Contingency plan for if student urgently needs funds?
Prototype 6: Improve financial literacy efforts - Overview Goal: Improve student s financial decision making by improving existing financial literacy efforts. Current challenge: Financial literacy alone, with out action-based interventions, do not change students financial behaviors. Proposed solution Create a Financial Action Plan Session that focuses on helping students make the right actions (i.e. opening a savings account, creating a budget, preallocating the use of a refund). This is an action session, not an educational one. Constructs Applicable to Design considerations Behavior Economic Principles Utilized Rename to Financial Literacy Programs to Financial Action Plan Tie lessons to actions Opening a savings accounts Pre-allocating use of refund Timely sessions Providing information after the point of decision is not effective Colleges with the infrastructure/capacity to provide a financial action plan session How can you make this session mandatory? How can you tie this session to students getting their distributions? Harness the power defaults and choice-overload to reduce the number of choices and set the actions you want students to make Help bring to life opportunity costs Reduce mental accounting biases
Prototype 6: Improve financial literacy efforts - Detail Construct Delivery channel Delivery type Requirements Measurable impact Engagement strategy Issues for consideration Create a Financial Action Plan Curriculum [Differs Depending on College] Mandatory Session (2 hr session) Capacity/ infrastructure to provide a financial action session % of students who complete semester vs. % of students who were not part of the program % of students who request emergency financial assistance vs. % of students who were not part of the program Pre and post survey on spending and savings behavior Have a financial institution partner on-site during disbursement to enroll students into a checking / savings account Time sessions in advance of students making financial decisions (i.e. before a refund, or income tax refund) Administrative costs?