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Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans

OFFICE OF HAWAIIAN AFFAIRS

Office of Hawaiian Affairs 560 North Nimitz Highway, Suite 200 Honolulu, HI 96817 www.oha.org

Paia Kāne Special Projects Section

Hostetter, C.J., Derrickson, J.P., & Patterson, J.

Native Hawaiian Revolving Loan Fund

Outcome Study:

Phase IIb. Debt Consolidation Loans

Summary Report

March 2015

OHA Research Disclaimer. The data represented have been vetted for accuracy; however, there is no warranty that it is error free. The data itself does

not represent or confer any legal right of any kind. Please use suggested citation and report discrepancies to the OHA Research Division.

Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 2


Contents Page

Abstract 2

Introduction 2

NHRLF Background 3

Introduction of NHRLF DCL 4

NHRLF Outcome Study 4

Purpose 5

Methodology 5

Sampling and Data Collection 5

Phase I 5

Phase IIb 6

Response Rates 6

Quantitative Data Analysis 7

Qualitative Data Analysis 7

Data Limitations 8

Key Findings 8

Phase I 8

Phase IIb 8

DCL Borrower Characteristics 9

Impact of DCL 11

DCL Contextual Framework 14

Conclusion 17

References 18

Suggested Citation 20

ABSTRACT

This report highlights the findings from a 2013 study of the Office of

Hawaiian Affairs’ Native Hawaiian Revolving Loan Fund (NHRLF),

with a focus on the Debt Consolidation Loan (DCL) product. This

product was introduced to address growing consumer debt and

improve financial stability in Native Hawaiian communities. The

study consisted of a retrospective outcome evaluation which

assessed the impact of NHRLF DCLs awarded between 2011 and

2012. Findings, from a sample of 185 households, indicated that

there was a statistically significant increase in the total debt of DCL

borrowers, over the time period evaluated. Specifically, 43% of DCL

borrowers increased their home debt, an average of $109,130 which

may be seen as an indication of improved financial stability.

However, DCL borrowers also significantly increased their non-

home debt an average of $7,268 indicating decreased financial

stability. Statistical analysis revealed that loan amounts under

$10,000 were associated with greater positive outcomes, including

increased household income, decreased non-home debt and

improved well-being. Qualitatively, DCL borrowers acknowledged

the immediate, positive impact of the lower interest rates and lower

monthly payments. However, the long-term impact of the DCL to

reduce debt and increase financial stability of Native Hawaiian

households remains unsubstantiated. Findings demonstrate the

need to collect multiple indicators of financial stability, including

data on household balance sheets and net worth, to determine the

effectiveness of the NHRLF DCL Program.

INTRODUCTION

As of 2013, Hawaiʻi had the highest average debt amount in the

United States at $83,810 per consumer. Over 80% of this debt was in

mortgages or home debt, due to the high cost of land and housing in

Hawai’i. Hawaiʻi’s non-home debt average of $19,954 was also $612

higher than the national average. As Hawaiʻi emerges from the Great

Recession of 2008, excessive consumer debt has led to ruined credit,

home foreclosure, bankruptcy, and has undermined household and

community financial stability. (Ratcliffe et al., 2014). Given that



Native Hawaiians in Hawaiʻi have disproportionately lower household income than the

state average (Hostetter, 2014), the ability to repay large debts is severely impeded.

Additionally, low-income families are more likely to be burdened with low credit scores

which compromise their ability to secure low interest rate loans. These higher rates can

create large monthly payments that are often applied to interest only. It remains

exceedingly difficult for a low-income Native Hawaiian family to break this cycle of debt and

become financially stable.

Although household financial stability is not easily defined or measured, research from the

Federal Reserve Bank outlined the importance of assessing not only a household’s income,

but the household’s complete balance sheet (Choi, 2013). A household may be considered

financially stable when assets exceed the total debt and the household’s net worth is

positive (Santoso, 2009). As these additional factors are taken into account, a more

comprehensive understanding of a household’s financial stability is created. This approach

highlights the need for solutions that address both assets development and debt

management. In fact, promoting long-term financial stability at the household level, as

measured through the household balance sheet framework, was found to be a critical factor

in communities’ economic recovery from the Great Recession (Boshara, 2012).

Within the household balance sheet framework, some forms of debt can be constructive,

economically stabilizing tools which contributes to building family wealth. Families taking

on home debt utilize an important savings tool by investing in home equity automatically

with each monthly mortgage payment. Increased debt, however, even constructive home

debt, can lead to financial stress, associated health risks, and insolvency if it cannot be

repaid. Therefore, the ability to manage and repay debt is key to household financial

stability (Ratcliffe et al., 2014).

Native Hawaiian Revolving Loan Fund Background

The Office of Hawaiian Affairs (OHA) endeavors to enhance the economic self-sufficiency of

Native Hawaiian families by addressing this cycle of growing consumer debt through the

introduction of a debt consolidation loan (DCL) product from the Native Hawaiian

Revolving Loan Fund (NHRLF). Established in 1987, NHRLF was created as a self-sustaining

program with repayments used to generate new loans for Native Hawaiians. The primary

purpose of NHRLF is to provide alternative funding to borrowers often denied traditional

loan products and to provide these loans at rates and terms not available from other

sources. As a lending program, NHRLF is directly aligned with OHA’s purpose of providing

resources to help improve the conditions of Native Hawaiians and specifically addresses

OHA’s Strategic Priority of “Hoʻokahua Waiwai: Economic Self-Sufficiency.” This priority was



developed through OHA’s vision of Hoʻoulu La hui Aloha (To Raise a Beloved Nation) and its

responsibility to improve the well-being of Native Hawaiians. As a public agency with a high

degree of autonomy, OHA was guided by this vision in the creation of its 2010 to 2018

Strategic Plan.

When OHA first implemented NHRLF, the sole focus was the provision of loans to Native

Hawaiian-owned businesses. This mission, however, was expanded in 2007 to “enhance

access for all persons of Hawaiian ancestry to credit, capital, and financial services and skills

so as to create jobs, wealth, and economic and social well-being to all the people of

Hawaiʻi” (OHA, 2007). At this time the program also began to provide home improvement

and education loans.

Introduction of NHRLF Debt Consolidation Loans

In April of 2011, due to the rising concerns over Native Hawaiian household debt, NHRLF

introduced DCLs at a 4% interest rate over a seven year term. A DCL combines a consumer’s

multiple debts into a single loan, generally lowering a household’s monthly payments and

providing a lower interest rate than the original loans. The maximum NHRLF DCL loan

amount was $24,999.

To be eligible for a DCL, a Native Hawaiian borrower was required to have a minimum credit

score of 650 and a maximum debt to income (DTI) ratio of 45%. DCL borrowers with credit

scores under 700 were required to complete at least one financial counseling session before

the funds were disbursed. Additional sessions were required based on household need. All

DCL borrowers were offered this service. This requirement was established in order to

ensure protection of NHRLF funds while still lending to these higher risk borrowers.

DCLs quickly became NHRLF’s most popular product with 1,232 applications received and

593 loans distributed, constituting $10,203,357 or 51% of the total funds distributed

between 2011 and 2012. To ensure funding availability for other NHRLF products, the DCL

program was placed on hiatus in June 2012, and reopened in February 2014.

NHRLF OUTCOME STUDY

OHA implemented the first NHRLF outcome study, in accordance with congressional

requirements, in order to provide valuable information to guide future program priorities

and policies. This study, initiated in the spring of 2013, was divided into three distinct

phases. The first phase focused on data collection and comparative analysis required to

verify key measures of success across all loan types (Derrickson et al., 2014). The second

phase of the study was designed to provide more in-depth analysis of the impact of NHRLF

business and debt consolidation loans specifically. This report addresses Phase IIb which



evaluates the impact of the DCLs exclusively. The final phase of this study was designed to

integrate recommendations generated from Phase I and Phase II evaluations into an ongoing

outcome evaluation of OHA’s lending programs.

Purpose of NHRLF Outcome Study: Phase IIb. Debt Consolidation Loans

A previous study from the National Endowment of Financial Education raised concerns

regarding the effectiveness of DCLs in reducing overall household debt and their

contribution to household financial stability (Bolton, 2013). With this in mind, the purpose of

the DCL outcome study was:

To determine the impact and effectiveness of the DCL program in fulfilling NHRLF’s

mission of enhancing access to credit, capital and financial services, to create wealth and

economic and social well-being for people of Native Hawaiian ancestry;

To identify characteristics of successful DCL borrowers; and,

To provide research-based recommendations to improve the DCL program and future

outcome evaluation.

METHODOLOGY

Sampling and Data Collection

The NHRLF Retrospective Outcome Evaluation was completed with a sample 1,134

borrowers who were awarded loans between FY2009 and FY2012. Methodological details of

the Phase I study, findings, and limitations were documented in the NHRLF and CMLP

Retrospective Outcome Evaluation report (Derrickson et al., 2014). The entire study

population consisted of 930 NHRLF borrowers, including all home, education and business

loans, and a stratified sample of 334 debt consolidation borrowers. Survey instruments were

mailed to borrowers and responses were received between July and August 2013. Fifteen

supermarket gift certificates of $50 each ($750 over two months) were awarded as

incentives to randomly selected respondents.

Phase I: Survey of All NHRLF Loan Types

Each DCL household completed a two-part survey including Part 1, with measures applicable

to all NHRLF borrowers, and Part 2, a DCL survey, with measures specific to DCL outcomes

(Derrickson et al., 2014). Part 1 included questions pertaining to borrower and household

characteristics, financial counseling, perceived value of the loan, and two key outcome

measures: household income and respondent well-being. These two measures were reported

at two time periods: Time 1 or the year before the loan (2011-2012), and Time 2 or at least

one year after loan reception (2013). Well-being was measured through the borrowers’



perceived satisfaction regarding their standard of living, health, and life achievements; each

evaluated on a scale from 0 (indicating completely unsatisfied) to 10 (indicating completely

satisfied). Responses from these three items were summed to create a well-being index

based on an internationally validated well-being measure (International Wellbeing Group,

2006). The primary qualitative measure of impact in Part 1 was an open-ended response to

the question “Please describe how the loan helped, or why it did not help you and your

household?” This question was specifically placed prior to all other measures of impact to

minimize bias.

Phase IIb: Survey of Debt Consolidation Loans

Data collected in Part 2 of the survey included key outcome measures of household debt at

two time periods, as well as qualitative and quantitative data on perceptions of how the loan

helped the borrower. Home debt was defined as the total amount owed towards the

borrower’s home. Non-home debt represented the sum of all other types of debt including

automobile loans, credit card debt, education loans, or any other form of personal loan. In

addition, to gather different aspects of how the loan might have helped, borrowers were

asked to indicate “Yes,” or “No” to a series of statements regarding how the loan may have

assisted them (lowering monthly payments, avoiding bankruptcy, better management of

money, keeping a job, keeping a home, receiving additional loans or financial help, or start to

build savings). Immediately following this question, borrowers where asked via an open-

ended question to share their story, specifically elaborating on any items they affirmed

previously, or if none of the items was affirmed, to elaborate on what they thought would

have assisted them to consolidate debt at the time of the loan. A final question asked wheater

or not borrowers were worried about paying off these loans.

Response Rates

The overall response rate to Part 1 of the survey from 930 NHRLF borrowers was 550 or

56%. Because 12% of the respondent households had received more than one loan, the

standard unit of evaluation was redefined as the household, instead of the loan recipient

(Derrickson et al., 2014).

Of the 593 DCLs distributed within the study period, 473 had contact information available.

From these 473 DCL borrowers, surveys were distributed to all DCL borrowers in Hawaiʻi,

Kauaʻi, and Maui counties and to a sample of 60% in the City and County of Honolulu, due to

the disproportionate volume of loans in this area. One hundred and ninety-six DCL surveys

were returned, representing 185 households or 59% of DCL surveys distributed.



Quantitative Data Analysis

Overall, data analysis consisted of an integration of Part 1 and Part 2 DCL data, so that

findings for Phase IIb of this study build on those previously reported (Derrickson et al.,

2014) providing a more robust, composite assessment. Various analysis (means, frequency,

analysis of variance (ANOVA), and correlations) were completed using SPSS Version 21. The

assessment of key measures utilized Repeated Measures ANOVA to assess the mean change

of household income, total debt, home debt, and non-home debt (from Time 1 to Time 2), by

key demographic measures, loan combinations, and the total amount of loan(s) received.

The alpha level for statistical significance was established at a = 0.05. Factors presented in

this report were found to be statistically significant. The relationship of key measures to

gender, county, and loan combination were not statistically significant; hence they were not

discussed in this report.

Qualitative Data Analysis

Analysis on borrowers’ perceptions of how the loan helped was based on two main sources

of data, including:

Open-ended responses pertaining to “their story” of either what was most helpful, or

what would have helped with debt consolidation; and,

The illustration of findings related to DCL impact, based on a qualitative item from Part 1

of the survey and originally developed and reported in Phase I (Derrickson et al., 2014;

Figure 20, page 80). This illustration was used in the process of triangulation and to

assess the generalizability of findings from Part 2 of the survey.

Standard qualitative data analysis methods and triangulation were implemented (Patton,

1987). Four members of the research and NHRLF teams independently analyzed qualitative

responses for key themes. When compared, there was a high level of inter-rater reliability

(agreement) on key themes, and all researchers agreed with the contextual framework

presented by the lead researcher (Figure 6). This analysis was completed independently of

Phase I findings. However, to assure generalizability, the final DCL contextual framework

was triangulated with both Phase I qualitative findings and simple frequency data analysis of

quantitative data representing the Yes/No responses to seven possible ways the loan could

have assisted. Notably, Figure 6 represents all of the concepts previously articulated in

Phase I and additional detail regarding the long-term impacts of the loan. Thus, the

contextual framework presented in Figure 6 supersedes the previous qualitative framework

developed in Phase I.



Data Limitations of Phase IIb: Survey of Debt Consolidation Loans

Overall, this study implemented a robust study design and the sample was representative of

the borrower population and created generalizable conclusions. However, data limitations

within Part 2 of the survey, relating to DCLs, were identified upon data analysis, including:

Most notably, there was insufficient data collected on supplementary measures of

household financial stability, such as credit score, amount in savings accounts, and

monthly debt payments to monthly income ratios to indicate a household’s ability to

repay debt. These measures were excluded in order to create a more user friendly

survey, and increase response rates.

Additionally, due to the reflective nature of the survey, pre-loan debt amounts were

recalled from memory by respondents, which may have led to inaccurate reporting.

Specifically, follow-up interview questions from sample of borrowers with multiple loans

revealed that some borrowers may have reported only the pre-loan debt amounts they

consolidated under NHRLF, rather than their entire pre-loan debt amount.

The DCLs qualitative questions in Part 2 were loaded through an inadvertent bias

towards the perceived benefit of DCLs, as the first question made an assumption of

benefit by asking the borrower to indicate the ways in which the loan helped them and

the open-ended question asked the borrower to elaborate on these indications.

KEY FINDINGS

Phase I: Results

Results from Phase I of the NHRLF outcome evaluation compared key outcomes among 550

households who received various combinations of loans products, including DCLs. Thus,

prior to this report on the DCL survey, Phase I findings included:

DCL borrowers demonstrated a smaller average increase in household income, but a

greater average increase in well-being than all other loan types, and

Only 54% of DCL borrowers reported completion of the offered financial counseling;

88% of whom found it helpful.

Overall, NHRLF borrowers of all loan types reported low-interest rate loans led to better

money management, increased confidence, enhanced credit scores, and/or stress reduction,

all of which contributed to enhanced well-being (Derrickson et al., 2014).

Phase IIb: Results and Discussion

Key findings from Phase IIb of this study are reported in three categories. First, a descriptive



analysis of the characteristics of DCL borrowers will be presented. Next, the overall impact of

these loans will be reported, including factors that may have contributed to the degree of the

impact. Finally, a qualitative analysis of DCL borrowers’ contextual descriptions will be

outlined in order to provide a more comprehensive understanding of these results.

DCL borrower characteristics.

1. Nineteen percent of DCL borrowers evaluated received multiple loans from OHA.

Of the 185 households to respond to the DCL survey, 6 received two DCLs, 19 received a DCL

and a home improvement loan, and 11 received a DCL and some other type of OHA loan, for a

total of 30 responding DCL households having received multiple OHA loans. One-hundred

and forty-nine households (81%) received only one DCL.

2. DCL borrowers received relatively large total loan amounts.

As seen in Figure 1, the largest percent of borrowers received a total loan amount between

$20,000 and $25,000 which represents the maximum DCL loan amount possible without the

provision of collateral. The average total loan amount was $21,123 and the average loan

amount of households with one DCL was $18,161. Only 12% of DCL borrowers received a

loan less than $10,000 and 12% received more than $25,000, representing the majority of

households who received multiple OHA loans.

Figure 1. NHRLF DCL distribution by total loan amount. Note. N = 185

3. Before receiving the loan, DCL borrowers had less financial stability than Hawaiʻi

state averages, as demonstrated by an average of $10,110 less in household income (U.S.

Census Bureau, 2011) and $7,504 more in non-home debt (Federal Reserve Bank of San

Francisco, 2011).



This study first explored the financial stability of the DCL borrowers prior to receiving a DCL

loan, as represented in Figure 2. Household financial stability was assessed not only through

household income, but also the household debt which is a major factor contributing to the

household balance sheet. DCL borrowers’ average annual household income prior to

receiving the loan was $68,692 only 87% of the average Hawaiʻi household income. Hawaiʻi

state averages were utilized in this study as a means of comparison, as data on Native

Hawaiian household debt is not currently available. However, U.S. Census Bureau data

indicates that Native Hawaiian households had larger household sizes; an average of 0.71

more individuals per household in 2011, than the Hawaiʻi state average. This difference

suggests that Native Hawaiian households stretched limited resources even farther, possibly

creating greater financial instability.

DCL borrowers’ average total household debt was $31,959 before the loan. On the surface

this relatively low total debt average of DCL borrowers appeared positive, but when debt is

broken down by home and non-home debt an alternative picture emerged. Prior to receiving

the loan, only 4.3% of DCL borrowers reported any home debt, which is generally viewed as

positive or stabilizing debt, creating a very low total debt ($31,959) and home debt average

($5,478). This low percentage of borrowers with pre-loan home debt could be due to the data

limitation previously cited of under reporting, but the trend is noticeably present.

Figure 2. Average pre-loan household income and total debt of DCL borrowers.

Note. *Due to missing values of home debt, average home debt, and average non-home debt

totals do not equal the average total debt of DCL borrowers prior to receiving the loan.



Additionally, DCL borrowers’ average non-home debt of $24,504 was 43% higher than the

Hawaiʻi state average and 45% higher than the United States average (Federal Reserve Bank

of San Francisco, 2011). Non-home debt can consist of credit card, car, education, or personal

loans and is generally viewed as negative or destabilizing debt due to revolving lines of

credit and high-interest rates commonly applied. In fact, before receiving the DCL, 79% of

borrowers reported credit card debt, 25% reported automobile debt, and 19% reported

other debt including home improvement loans, personal loans, tax debt, and utility debt.

Impact of debt consolidation loans.

4. On average, DCL borrowers significantly increased their total debt over the time

period evaluated (F(1,171) = 76.48, p < .001). Specifically, home debt dramatically

increased to levels exceeding the Hawaiʻi state and national averages. Of more concern,

however, was the significant increase in average non-home debt of DCL borrowers by

29%.

As depicted in Figure 3, DCL borrowers increased their total debt by an average of $109,130

while household income increased an average of only $2,413. Due to this great increase in

total debt over time, DCL borrowers’ average debt was significantly higher than the average

household income, which can be an indication of financial instability. In fact, the household

income of DCL borrowers remained lower than state and national averages, while the

average total debt of DCL borrowers in 2013 far exceeded state and national averages.

Figure 3. Comparison of average household income and total debt.

Note. Source of Hawaiʻi and U.S data: Debt in American, Urban Institute, July 2014.



However, 71 DCL borrowers or 43% of the study’s sample reported new or increased home

debt from the time they received the loan to 2013 (see Figure 4). Some of this increase

could be due to under reporting of pre-loan home debt or, alternatively, the DCL could have

assisted borrowers in receiving new mortgages; a generally stabilizing form of credit.

Troublingly, non-home debt, which is commonly associated with revolving lines of credit,

high-interest rates, and greater economic instability, also increased significantly by $7,268

or 29% (F(1,170) = 8.35, p = .004). In fact, 59% of borrowers reported an increase in non-

home debt.

This data can also be represented as DCL borrowers’ debt relative to income. This ratio is

calculated by dividing the average debt by average income of a population. The same trends

emerge from this calculation, with DCL borrowers increasing their average total debt relative

to income from 0.47 to 1.98 over the time period evaluated. By 2013, DCL borrowers had

increased debt relative to income levels that were higher than the Hawaiʻi state ratio of 1.01

(Ratcliffe et al., 2014) .

5. On average, DCL borrowers with loans less than $10,000 decreased their non-home

debt over time, while borrowers who received larger loans increased their non-home

debt. This difference was statistically significant (F(4,166) = 3.14, p = .016).

Although, the majority of DCL borrowers increased their non-home debt by 2013, borrowers

with loans less than $10,000 actually decreased their non-home debt by $9,668 or a change

of 49% (see Figure 5). In fact, 68% of small DCL borrowers decreased their non-home debt,

in comparison to 32% of borrowers with high DCL loan amounts.

Figure 4. Comparison of average home and non-home debt.

Note. Source of Hawaiʻi and U.S data: Debt in America, Urban Institute, July 2014.



Figure 5. Average non-home debt by DCL amount.

6. Overall, there was no significant change in household income from pre-loan to 2012;

however, there was a significant difference in income between borrowers with loans of

less than $10,000 and borrowers with larger loan amounts.

It was expected that due to the nature of DCLs, this loan product would not have a significant

impact on income specifically, but rather on the overall economic stability of the home. Yet,

due to its importance as a strategic result of OHA, this measure was included in the analysis.

Overall, the household income of DCL borrowers increased by only 3.5%; from an average of

$68,692 prior to the loan to $71,105 in 2013. This change over time was not statistically

significant (F(1,164) = 3.69, p = .057). However, borrowers who received less than $10,000

revealed a significantly different result than all other borrowers, as their average household

income increased 7.3% (F(4,160) = 8.09, p < .001). The small loan borrowers had an average

pre-loan income less than all other loans, which could account for some of the variation.

7. DCL borrowers demonstrated a significant increase of 19% on the Well-Being Index

over time. Again, DCL borrowers with smaller loan amounts reported a significantly

greater increase in well-being than those with larger loan amounts, as did female

borrowers.

Of the 185 DCL borrowers, 71% reported an increase in their well-being (F(1,184) = 108.19,

p < .001). Again, those borrowers with loan amounts less than $10,000 demonstrated a

significantly greater improvement of 31% and, in fact, had a higher average well-being score

in 2013 than borrowers in all other loan amount groups (F(4,180) = 2.59, p = .038).

Additionally, female borrowers reported significantly greater well-being improvement of

27%, than males (13%) or couples (19%) (F(2,182) = 3.94, p = .021).



Debt Consolidation Loans contextual framework.

8. DCL borrowers reported high levels of immediate, positive impact due to the debt

consolidation program. Reporting on long-term impacts, however, revealed a more

diverse context in which some borrowers were able to use the money saved to increase

their financial stability or well-being, while others used the money saved to simply

survive economically.

Quantitative results from this study were contradictory to the program assumption that the

DCL program would decrease borrowers’ non-home debt over time. Therefore, qualitative

data reflecting the borrowers’ perceptions of the context of their financial stability became

important in this analysis. This data provided a new understanding of how the DCLs were

utilized by the Native Hawaiian community. The findings represent a framework on which

future evaluations of NHRLF’s DCL can be based (see Figure 6).

Many borrowers described their financial instability prior to receiving the DCL and the

causes of the debt accumulation, including high-interest rates and emergencies that had

negative financial effects on their households. Some borrowers went on to explain the

assistance the DCL program provided and the immediate results of this assistance. Two of

the major themes that emerged were: the direct financial assistance received (i.e. lower

monthly payments, lower interest rates, and the consolidation or paying off of multiple

loans) and, the increase in the borrowers’ financial literacy or money management skills. In

fact, when asked to indicate in which of the following ways the DCL assisted them, 95% of

borrowers specified lowering monthly payments and 78% specified better money

management.

Overall, the majority of DCL borrowers found the immediate results of the DCL to be

beneficial. However, the utilization of the money saved and the new financial skills acquired

was varied. Echoing the findings from the well-being index, some borrowers (9%) reported

a significant increase in their mental, emotional, and physical wellness, primarily through the

reduction of stress. Other positive long-term impacts included the ability of the borrower to

invest in a savings account (9%).

More controversially, borrowers also reported that the DCL assisted them in increasing their

credit, as the lower monthly payments of the DCL allowed them to be eligible for additional

loans they could not previously receive (6%). This result can be viewed as either a positive

or negative impact depending on the specific financial context of the household, and may

explain why such an increase in home and non-home debt was demonstrated in the

quantitative data. Several borrowers reported receiving additional loans for education,

automobiles, refinancing of their homes, and home improvements.



Causes of Debt

Accumulation

High interest

rate loan

Financial

emergencies

Debt Consolidation

Loan

Improved money

management

“...encouraged us to

streamline our spending

and make better

financial decisions.”

Immediate

Results

Direct financial

assistance

Debt consolidation

Lowered interest

rate & lowered

monthly payments

“The loan helped cause

the interest rate and

monthly were low. It put

more money back in my

pocket.”

Long-Term Impact

Improved well-being “I was able to sleep better knowing my car was still outside and not going to get picked up by repo.”

Investment in savings “I am not eligible to use my Hawaiian Homestead home to take out an equity loan so this option is very helpful with ...saving to afford further improvements (solar system, furniture, and deck extension. Mahalo!”

Increased credit Auto, Education, Home improvement

loans Refinancing of home “Allowed us to ...secure other debt to send our daughter to private school.”

Survive economically “I have a slightly greater cash flow that helps me take care of gas, food and ordinary monthly expenses that I used to have to sacrifice.”

Continued financial instability “I started out debt free...as the days and months went by I had trouble separating my needs from my wants...I’m trying to hold on to my house and pay for food, car, education, medical bills, etc… “ Figure 6. DCL borrower contextual framework.

Most notability, 17% of DCL borrowers described a context in which they faced such

economic hardship that the DCL merely assisted them in surviving financially or affording

basic necessities such as housing, gas, food, and additional bill payments. Thus, for these

households, although the immediate result of the DCL was extremely beneficial, they did not

report a long term impact of improved financial stability.



9. In 2013, 37% of DCL borrowers were worried about their ability to pay off their debt.

A smaller percentage of borrowers with DCLs less than $10,000 or greater than $25,000

reported their concern.

As previously stated, the ability to repay debt is key to household financial stability, more so

than the amount of debt itself. This may hold particularly true for DCL borrowers in this

study, as higher incomes were strongly correlated with higher home and non-home debt,

indicating that those with higher incomes may have the means to make payments towards

the debt without impacting the household’s financial stability. DCL borrowers were asked to

indicate their concern over debt repayment as an indication of their ability to repay.

Although overall there was a large percent of DCL borrowers still worried about debt

repayment (37%), a smaller percentage of DCL borrowers with loans less than $10,000 were

worried (26%), indicating they may have had greater financial stability with lower debt

amounts prior to the DCL loan or, alternatively, they may have made greater improvements

to their financial stability as a result of the smaller DCL. Additionally, only 27% of DCL

borrowers with loans over $25,000 were still worried in 2013. As these borrowers had

higher household income levels, this lack of concern could have been due to their ability to

pay off larger debt amounts (See Figure 7).

Figure 7. Percent of DCL borrowers worried about debt repayment by loan amount, 2013.



CONCLUSION

Analysis of Native Hawaiian households served by the NHRLF DCL program found that the

financial assistance of lower monthly payments and lower interest rates, supported by

improved financial literacy skills, led to some positive immediate outcomes for Native

Hawaiian borrowers. However, a qualitative assessment of the long-term impact of the DCL

depicts more complex outcomes. Quantitative findings revealed that DCL borrowers’ debt

showed a statistically significant increase after the loan was received. When the debt amount

was divided by home and non-home debt, it was seen that 71 borrowers took on new home

debt. This increase in borrowers’ home debt could point to a positive result in which the

DCL assisted Native Hawaiian households in qualifying for new mortgages, thereby

supporting increased financial stability.

In contradiction to NHRLF program expectations, non-home debt of DCL borrowers also

significantly increased, indicating greater financial instability. In previous studies on DCLs

and behavior, this increase in negative debt was labeled the DCL Boomerang Effect, wherein

borrowers see the DCL at a lower interest rate as a ‘get out of jail free card,’ which

Table 1. Lessons Learned from DCL Study

Indicated Positive Impact Indicated Negative Impact Immediate, direct financial assistance as a result of lower monthly payments and lower interest rates.

Low utilization of financial counseling offered.

Increase in new home debt; an indication of household financial stability.

No statistically significant impact on household income.

Decrease in borrowers’ stress and increase in well-being.

Increase in non-home debt; an indication of greater household financial instability.

Increase in financial stability of DCL borrowers who received loans of less than $10,000.

Decrease in financial stability of DCL borrowers who received loans of $10,000 or more.

Implications of Findings

On average, Native Hawaiians served by the NHRLF DCL program represent financially unstable households with lower income and higher debt than average Hawaiʻi households; thus the program should be designed specifically for this unique population.

Results indicated that smaller loans had greater impacts across various measures of well-being and financial stability; future NHRLF policies or marketing strategies could take this into account.

In order to confirm DCL impact, full financial data indicating household financial stability should be tracked from intake to the close of the loan.

Inconsistency between borrower perception and actual financial stability may be present; therefore objective and documented data should be collected.



will allow them to continue their harmful heavy borrowing habits (Bolton et al., 2013). In

order to establish the impact of this effect with NHRLF DCL borrowers, additional data

collection is necessary. To eliminate possible recall errors, financial data, including home and

non-home debt amounts, savings amounts, assets worth, monthly debt payments, and

monthly income should be collected at the point of intake and updated annually to gain a full

picture of the household balance sheet and changes that may occur over time. Program staff

and evaluators should work collaboratively to verify data through documented sources.

Additionally, more specific and objective qualitative questions should be presented through

which DCL borrowers can more fully describe their financial choices. Through a comparative

analysis of these data, a deeper understanding of the interaction between borrower

perceptions of success, economic behavior, and household financial stability could be

reached.

Notably, this study indicated that DCL of smaller amounts, less the $10,000 had significantly

greater positive impacts than loans of larger amounts. Borrowers with smaller loans

reported significantly greater increases in household income, as well as significantly greater

increases in well-being. Most importantly, the amount of the loan was the only factor that

was shown to have an effect on the change in non-home debt over time, with small loan

borrowers actually reporting a decrease in non-home debt since receiving the DCL.

Dependent on the specific objective of the DCL program, loan amounts could be adjusted in

future NHRLF policies.

In summary, findings indicate that OHA’s NHRLF debt consolidation loan product is

appropriately addressing the original mission of the program. The inclusion of this loan

product has enhanced Native Hawaiian access to credit, capital and financial services and

skills. However, the ability of this access to create wealth and economic self-sufficiency

remains questionable.

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SUGGESTED CITATION

Hostetter, C.J., Derrickson J.P., & Patterson, J. (2015). Native Hawaiian Revolving Loan Fund

Outcome Study: Phase IIb. Debt Consolidation Loans: Summary Report. Honolulu, HI:

Office of Hawaiian Affairs, Research Division.

http://www.bis.org/publ/bppdf/bispap46h.pdf

http://www.bis.org/publ/bppdf/bispap46h.pdf

http://www.census.gov/acs/www/

http://www.census.gov/acs/www/

Documents

Native Hawaiian Revolving Loan Fund Outcome Study: Phase ...€¦ · Native Hawaiian Revolving Loan Fund Background The Office of Hawaiian Affairs (OHA) endeavors to enhance the economic