Commonwealth + Hebrew Free Loan Society Debt refinancing study

The Hebrew Free Loan Society (HFLS) fosters financial stability and opportunity by providing access to safe and affordable credit in the form of interest-free loans. HFLS loans enable borrowers to attend college, improve their job skills, start a business, or respond to unexpected financial challenges.

background and goals

In 2021, Hebrew Free Loan Society (HFLS) provided approximately 200 of their existing zero-interest loan borrowers with the opportunity to reduce their monthly repayment amount by half while doubling the repayment period, freeing up additional funds in their monthly budgets that would normally have gone toward debt repayment. Commonwealth and HFLS collaborated to understand the impacts of the debt refinancing offer on borrowers’ financial wellbeing.

findings

  • The debt payment reduction increased borrowers’ ability to save. The number of people who reported that they were saving regularly nearly doubled over the course of the pilot, from 7% to 13% of respondents, compared with no change for the control group.

  • Debt refinancing increased financial wellbeing. In fact, 68% of respondents who received a loan payment reduction reported that their financial situation improved in the months that followed, with 82% citing the HFLS loan refinancing as contributing to this improvement.

  • Debt with favorable terms helped reduce the burden of other, more onerous debt. At the end of the pilot period, half of borrowers reported that they had used the money freed up by the payment reduction to pay down other debts.

  • Refinancing debt repayment on more favorable terms increased the likelihood of repayment in full and on time. These results suggest that favorable debt refinancing may benefit not just borrowers, but also lenders.

Full study brief available here: https://buildcommonwealth.org/research/increasing-savable-funds-through-debt-refinancing/

role

Project manager; Lead researcher (Commonwealth)
Commonwealth collaborators: Charles de la Cruz, Anahit Fitzpatrick, Gosia Tomaszewska, Melissa Gopnik
HFLS collaborators: Rabbi David Rosenn, Melissa Czarnik

location

Remote

TimeFRAME

2020-2022

process

Collaborative research planning between Commonwealth and HFLS began in 2020, and outreach to HFLS borrowers to understand interest in a debt refinancing offer occurred in late 2020. For the 200 randomly selected borrowers who chose to refinance their loans, monthly payments were halved beginning in January 2021. A control group of about 50 borrowers who were not interested in the offer or who were interested but not randomly selected for the refinancing were also included in the study.

Between January and November 2021, HFLS borrowers filled out baseline and endline surveys; those receiving the payment reduction filled out a midpoint survey in May, and nine individuals were interviewed by the Commonwealth team in July 2021. Commonwealth also received de-identified data from HFLS on the repayment behavior of these borrowers and the overall pool of HFLS borrowers.