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
OFFICE OF HAWAIIAN AFFAIRS
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 Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 3
OFFICE OF HAWAIIAN AFFAIRS
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
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 4
OFFICE OF HAWAIIAN AFFAIRS
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
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 5
OFFICE OF HAWAIIAN AFFAIRS
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’
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 6
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 7
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 8
OFFICE OF HAWAIIAN AFFAIRS
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
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 9
OFFICE OF HAWAIIAN AFFAIRS
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).
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 10
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 11
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 12
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 13
OFFICE OF HAWAIIAN AFFAIRS
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).
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 14
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 15
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 16
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 17
OFFICE OF HAWAIIAN AFFAIRS
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.
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 18
OFFICE OF HAWAIIAN AFFAIRS
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.
REFERENCES
Bolton, L.E., Bloom, P.N., & Cohen, J. (2013). Helping Consumers Respond Responsible to the
Advertising and Availability of Debt Consolidation Loan. Retrieved from National
Endowment for Financial Education website: http://www.nefe.org/Portals/0/
WhatWeProvide/PrimaryResearch/PDF/
HelpingConsumersRespondtoDebtConsolidation_Final.pdf
Boshara, R. (2012). Ownership and Debt: Minding the Balance Sheet. Democracy, 26.
Retrieved from http://www.democracyjournal.org/26/ownership-and-debt-minding
-the-balance-sheet.php?page=all
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 19
OFFICE OF HAWAIIAN AFFAIRS
Choi, L. (2013). Household Net Worth & Asset Ownership Among the Economically
Vulnerable. Retrieved from Federal Reserve Bank of San Francisco website: http://
www.frbsf.org/community-development/files/household-net-worth-asset-
ownership-among-the-economically-vulnerable.pdf
Derrickson, J.P., Cameron, W., Patterson, J., Lum Lee, C., Mattos, T., Toriki, .S, Haliniak, C., &
Navarrette, J. (2014). NHRLF and CMLP Retrospective Outcome Evaluation: Phase I. Key
Measures of Success. Office of Hawaiian Affairs, Research Division and Transitional
Assistance Program, Honolulu, HI.
Federal Reserve Bank of San Francisco. (2011). Consumer Credit Conditions Hawaii.
Retrieved from Federal Reserve Bank of San Francisco website: http://
www.frbsf.org/community-development/files/ConsumerCredit_HI-11Q31.pdf
Hostetter, C.J. (2014). Income Inequality and Native Hawaiian Communities in the Wake of the
Great Recession: 2005-2013 (Hoʻokahua Waiwai, Economic Self-Sufficiency Fact Sheet,
Vol. 2014, No. 2). Retrieved from Office of Hawaiian Affairs website:
http://19of32x2yl33s8o4xza0gf14.wpengine.netdna-cdn.com/wp-content/
uploads/2014/05/Income-Inequality-and-Native-Hawaiian-Communities-in-the-
Wake-of-the-Great-Recession-2005-2013.pdf
International Wellbeing Group. (2006). Personal Wellbeing Index. Melbourne: Australian
Centre on Qualitative of Life, Deakin University. Retrieved from the Deakin University
website: http://www.deakin.edu.au/research/acqol/instruments/wellbeing-index/
pwi-adult-english.pdf
Office of Hawaiian Affairs Strategic Plan: Economic Self-Sufficiency Indicator, 2010-2018.
Retrieved from Office of Hawaiian Affairs website: http://www.oha.org/strategicplan
Office of Hawaiian Affairs Malama Loans. (2007) Retrieved March 5, 2015 from Office of
Hawaiian Affairs website: http://www.oha.org/malamaloan
Patton, M.Q. (1987). How to Use Qualitative Methods in Evaluation. London, England: Sage
Publications.
Ratcliffe, C., Theodos, B., McKernan, S., Kalish, E., Chalekian, J., Guo, P., & Trepel, C. (2014).
Debt in America (An Opportunity and Ownership Initiative Brief). Retrieved from
Urban Institute website: http://www.urban.org/UploadedPDF/413190-Debt-in-
America.pdf
Native Hawaiian Revolving Loan Fund Outcome Study: Phase IIb. Debt Consolidation Loans 20
OFFICE OF HAWAIIAN AFFAIRS
Santoso, W. & Sukada, M. (2009). Risk profile of households and the impact on financial
stability. Bank for International Settlements Papers, 46, 58-74. Retrieved from http://
www.bis.org/publ/bppdf/bispap46h.pdf
United States Census Bureau. (2012). DP03 Selected Economic Characteristics, American
Community Survey 2011. Retrieved from United States Census Bureau website: http://
www.census.gov/acs/www/
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.