2011 Evaluation of the National Ways to Work Program Prepared by ICF International, Fairfax, VA

BACKGROUND

Ways to Work (WtW) is a unique federally certified Community Development Financial Institution (CDFI) based in Milwaukee, WI. Through our network of loan offices across the country, we provide small, short-term, low-interest loans to hardworking credit-challenged families. We provide an alternative to predatory lenders for people with a demonstrated commitment to achieving increased self-sufficiency. All of our loan offices are hosted within family-serving member agencies of the Alliance for Children and Families. This ensures that our borrowers have ready access to a wide variety of services to help them be successful with their loan and with the change in lifestyle that this typically requires.

ACKNOWLEDGEMENTS

WtW would like to acknowledge the following individuals and organizations for their generous support of the program and evaluation studies: Our borrowers who continually inspire us with their efforts to transform their own lives; The WtW Board of Directors who give so generously of their time and resources; The dozens of family-serving agencies that deliver the WtW program to their communities across the country; The staff of WtW and our sister companies within the Families International group of companies: The Alliance for Children and Families, United Neighborhood Centers of America and FEI Behavioral Health; TransUnion, Inc. for their thoughtful collaboration with us on multiple evaluations and ongoing studies; The CDFI Fund of the U.S. Department of the Treasury for their financial support of the ICF study.

WAYS TO WORK BOARD OF DIRECTORS AND KEY STAFF J. Hunter Atkins, Board Chair Chairman The Bank of Nashville Nashville, TN Milton J. Little, Jr., Vice Chair President & Chief Executive Officer United Way of Metropolitan Atlanta Atlanta, GA Timothy P. Hanley, Secretary/Treasurer Partner, Deloitte & Touche Milwaukee, WI Jennifer L. Dorn Chief Executive Officer American Academy of Physician Assistants Alexandria, VA Donald H. Goughler President & Chief Executive Officer Family Services of Western Pennsylvania Pittsburgh, PA William J. Grinker Senior Advisor HR&A Advisors, Inc. New York, NY Scott W. Humphrey Executive Managing Director Head of U.S. Mergers & Acquisitions BMO Capital Markets Chicago, IL Krista Larson Executive Director Metropolitan Family Service Portland, OR Donald W. Layden, Jr. Partner, Quarles & Brady LLC Operating Partner, Baird Venture Partners and Baird Capital Partners Milwaukee, WI

John A. Shutkin General Counsel CliftonLarsonAllen LLP Milwaukee, WI Burton Sonenstein Vice President & Chief Investment Officer Annie E. Casey Foundation Baltimore, MD Stephen Mack Chairman Alliance for Children & Families Board of Directors (ex officio member)

WAYS TO WORK MANAGEMENT Susan N. Dreyfus Chief Executive Officer Families International, Inc. Jeffrey E. Faulkner President Ways to Work, Inc. John R. Schmidt Chief Financial Officer Families International, Inc. Wendell E. Willis Vice President of Operations Ways to Work, Inc. Matthew L. Mueller Vice President of Funding Support Services Ways to Work, Inc. Linda Brost Vice President of Business Development & Marketing Ways to Work, Inc.

T A B L E O F C O N T E N T S

An evaluation study such as this is only accomplished through much hard work and valuable contributions. WtW wishes to thank the individuals at ICF International for their efforts. E X E C U TIV E S U MMA RY i Introduction iv Major Findings by Study vi Conclusions and Recommendations P R OGR A M OU TC OME S S TU D Y 1 Introduction 2 Roles of the National Office and Local Sites in Program Delivery 12 What Is the Starting Point for Ways to Work Borrowers? 16 Findings from the Borrower Survey 30 What Local Site Activities Produce Successful Participants? 36 Conclusions C R E D IT IMPA C T S TU D Y 38 Introduction 41 One- and Two-Year Changes in Credit Score 45 Longitudinal Score Trends for Earlier Borrowers 49 Comparison Study 51 Conclusions and Future Directions R E TU R N ON IN V E S TME N T S TU D Y 53 Introduction 57 Components of ROI Results by Stakeholder Group

A P P E N D IC E S 65 69 75 85

Appendix A: Propensity Score Matching Details Appendix B: ROI Methodology and Citations Appendix C: Borrower Profiles Appendix D: Ways to Work Background

Executive Summary

Ways to Work 2011 Evaluation Executive Summary

Ways to Work 2011 Evaluation Final Report

1. Executive Summary 1.1. Introduction In March 2011, Ways to Work, Inc. commissioned ICF International, a Fairfax, Virginia, based consulting group, to conduct three studies exploring the extent to which the program is having its intended effect. The evaluation is guided by four primary evaluation questions developed in partnership with Ways to Work staff: What are the short-term individual and family outcomes associated with participation in the Ways to Work program? Is there a link between program activities and outcomes for borrowers? What is the impact of participation in Ways to Work on borrower credit scores? How does this impact compare to those of non-participants with similar baseline credit scores? In what ways does participation in the Ways to Work program result in a net financial gain for stakeholders? In what ways are individuals who participate in the Ways to Work program able to achieve a higher degree of economic security (e.g., income covers expenses, saving for future goals, ability to withstand unexpected financial crises)? In addition, the evaluation is guided by a program logic model developed through discussion and interaction between Ways to Work and ICF staff (see Figure 1-1).

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Ways to Work 2011 Evaluation Executive Summary Figure 1-1. Ways to Work Program Logic Model

Inputs •National Services •Local site capacity support •Ways to Work loan system •Program stewardship

•Local Services •Market the program •Manage loan committee •Provide case management and crossreferrals •Partner with mechanics •Process asset purchase

Activities •National Activities •Select sites and guide management •Raise loan funds •Provide underwriting of agencies •Provide IT systems •Provide local funding support •Perform loan origination servicing

•Local Activities •Intake assessment •Financial education and credit education •Loan payment counseling and case management mirroring real world borrowing •Car maintenance counseling •Collection of loan in its entirety or vehicle repossession •Client borrower underwriting

Short-Term Outcomes •National and Local Outcomes •Current employment of participants is protected •Job attainment of participants enhanced by promoting increased mobility •Increased job readiness by increasing access to training and skill building •Transportation time reduced for participants, freeing time for family involvement, education, or more work hours •Increased financial literacy and participants encouraged to open savings accounts •Building of soft skills by improving self-esteem

Intermediate Outcomes •National and Local Outcomes •Removal of barriers to employment by promoting reliable transportation, which reduces work absence or tardiness • Financial literacy skills translate into job skills •Increased income for participants from reliable transportation •Increased creditworthiness of participants to access additional assets •Better care for children supported with more access to child care programs, after school activities, and health care facilities

Long-Term Outcomes •National and Local Outcomes •Economic stability for participating households •Loan repaid in full •Households reduce reliance on public assistance programs •Households can access traditional financial markets due to increased credit scores

Participants can increase their annual wages

CONTEXT: •Household is in a state of economic instability. •Household/applicant is a parent who is working and/or in post-high school education. •Household/applicant has limited access to traditional, affordable & responsible credit resources.

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Ways to Work 2011 Evaluation Executive Summary

The Ways to Work program is designed to meet the immediate needs of low-income working families by providing skills and knowledge to build and maintain financial security. The program provides Ways to Work borrowers with low-cost financing for a car, with no down payment required. To identify borrowers that will be successful at repaying their loans, Ways to Work uses character-based lending. Instead of basing the provision of the loan on borrowers’ credit scores, the loan officer evaluates each borrower’s work history and motivation to improve his or her economic situation. To obtain a loan, borrowers must submit a statement of why they deserve to have a Ways to Work loan and demonstrate that they will monitor their income and expenses to pay back the loan by developing a household budget. Their monthly loan payments are reported directly to two of the three major credit bureaus (TransUnion and Experian), establishing for them a pattern of creditworthiness. A 2006 evaluation of Ways to Work indicated that having access to a car contributed to improving borrowers’ financial situations. Recent economic conditions suggest a need to examine if this trend continues and how the Ways to Work program addresses its target population of low-income families that are typically adversely affected by current economic conditions. In addition, since the 2006 evaluation, Ways to Work has restructured its program model. The evaluation, therefore, also examines how this restructuring has affected implementation of the program at local Ways to Work sites. With this information in mind, the ICF Evaluation Team conducted three distinct studies: 1. Program Outcomes Study: The Program Outcomes Study addresses the outcomes associated with participation in the Ways to Work program and the link between program activities and these outcomes for borrowers. It also examines the economic security of borrowers. The survey of recent borrowers with loan start dates between 2007 and 2010 captures changes in employment, income, education, and financial management since enrollment in the program. The survey also examines borrowers’ impressions of the impact of the program in these areas. An additional survey of local sites provides information on how each site delivers the program and supports the borrowers to successfully repay their loans. 2. Credit Impact Study: The Credit Impact Study examines the impact of the program on borrower credit scores. We compare borrowers’ baseline credit scores with their scores one and two years after receiving the loan. We examine longitudinal changes in scores for borrowers who received loans between 2001 and 2003. We also constructed a comparison group based on the characteristics of borrowers who received loans between 2007 and 2009, and we analyze the two groups’ changes in credit score. 3. Return on Investment Study: The Return on Investment Study quantifies the net financial gain for stakeholders that results from the Ways to Work program. Stakeholders include borrowers, employers, taxpayers, and local lenders. Measures considered include employment-related savings from owning a car, savings from avoiding predatory lending products, and savings from reduced reliance on public programs. Combined, these studies provide a comprehensive examination of the implementation of the Ways to Work program model from 2007 to 2010.

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Ways to Work 2011 Evaluation Executive Summary

1.2. Major Findings by Study The findings from each study are reported in the body of this report. Cumulative findings from the studies and relevant conclusions follow.

1.2.1. Program Outcomes Study Key findings from the Program Outcomes Study indicate the following: Borrowers are able to increase their wages after participating in the Ways to Work program. Of the 318 respondents who report having an income, 47 percent indicated increases in their income since taking out the loan. Thirty-five (35) percent experienced an increase of more than 10 percent. Ways to Work borrowers are advancing their educational careers after receiving their loans. About 26 percent of respondents indicated increases in their educational attainment since receiving the loan. The most common transition was going from a high school degree to completing some college courses. More Ways to Work borrowers joined the mainstream financial marketplace after receiving their loans. Of the 114 survey respondents who did not have a checking account at the time of the Ways to Work loan, 50 percent have opened a checking account since receiving the loan. Of the 194 respondents who did not have a savings account at the time of the Ways to Work loan, 35 percent have opened a savings account since receiving the loan. Twenty-four (24) percent of respondents indicate they have taken out another secure loan to support household needs since the Ways to Work loan.

1.2.2. Comparison of Findings From 2006 and 2011 Evaluations Figure 1-2 provides a comparison of selected findings from the 2006 and 2011 evaluations. Any comparison between the results from this study and the 2006 Ways to Work Evaluation must be put into context with economic conditions during the two time periods. The time period examined in the 2006 evaluation was characterized by a moderate decline in economic conditions from 2001 and 2002, but then a rapidly expanding economy from 2003 through 2005. The time period examined in this current evaluation was characterized by a peak in 2007 but a rapid, widespread deterioration in economic conditions from 2007 to 2010. According to Ways to Work national office staff, changes in the economy also impacted the populations that sought loans from Ways to Work. With the tightening of the credit market in the late 2000s, borrowers with relatively higher incomes and credit scores turned to Ways to Work for affordable car loans that they could not access elsewhere as they might have done before the recession.

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Ways to Work 2011 Evaluation Executive Summary Figure 1-2. Comparison of Selected Findings From 2006 and 2011 Ways to Work Evaluations 2006 Evaluation Findings

2011 Evaluation Findings

(performed by OMG Center for Collaborative Learning)

Income and Self-Sufficiency Almost three-quarters of participants report higher net monthly income. Borrowers average a 41 percent increase in income (take-home pay) (average baseline net annual income: $11,904). Eighty-seven (87) percent of borrowers continue to sustain themselves without public cash assistance despite receiving it before entering the program.

One-half of employed respondents report higher gross monthly income. Over a third (35 percent) of employed respondents report an increase in income of more than 10 percent. Respondents average an 8.2-percent increase in wages (average baseline gross annual wages: $21,987) since receiving their Ways to Work loan. Eighty-two (82) percent of survey respondents sustain themselves without Temporary Assistance for Needy Families (TANF) cash assistance despite receiving it before receiving their Ways to Work loan.

Employment Ninety (90) percent of borrowers report their Ways to Work car allowed them to maintain or improve their employment circumstances. Fifty-five (55) percent have found more responsibility or higher pay.

Ninety-four (94) percent of respondents indicate that their Ways to Work car helped them to maintain or improve their employment circumstances. Forty-four (44) percent of respondents indicate they have received a promotion or pay increase since receiving the Ways to Work loan.

Education Fifty (50) percent of borrowers accessed further education or job training thanks to their Ways to Work car.

Twenty-six (26) percent of survey respondents indicate that they have increased their educational attainment since receiving the Ways to Work loan.

Departure from Predatory Lending/ Use of Mainstream Financial Services Two-thirds (about 66 percent) of all borrowers have initiated a new account (checking, savings, or credit card) or obtained a new loan since receiving their Ways to Work loan.

Fifty-eight (58) percent of respondents indicate that they have opened a new checking or savings account, obtained a new credit card, or taken out a new loan since receiving the Ways to Work loan.

Care of Children Nearly all borrowers find that the car enhances their ability to make sure their children get to school on time, take the children to medical appointments, and access better childcare services.

Nearly all respondents indicate that the car helps them provide better care for their children and do more things for or with their children.

Source: 2006 Ways to Work National Evaluation, 2011 Ways to Work Borrower Survey

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Ways to Work 2011 Evaluation Executive Summary

1.2.3. Credit Impact Study Key findings from the Credit Impact Study regarding non-defaulting borrowers (those who have completely paid off their Ways to Work loans or who are on target to do so) indicate the following: Recent borrowers may be increasing their credit scores more quickly than borrowers in the past. For example, borrowers who initiated loans between December 2008 and February 2009 averaged a two-year increase in credit score of 13.3 points, while in comparison, borrowers who initiated loans between December 2001 and February 2008 averaged increases of 6.9 points. Program participation contributes to improvements in credit scores. Early groups of borrowers have increased their mean credit scores by an average of 31.7 points since joining the Ways to Work program. Borrowers who initiated loans between December 2001 and February 2002 had a mean credit score increase of 30.4; borrowers who initiated loans between December 2002 and February 2003 had a mean credit score increase of 44.6; and borrowers who initiated loans between December 2003 and February 2004 had a mean credit score increase of 23.7. When compared with a group of demographically similar individuals, Ways to Work borrowers outperform their non-Ways to Work borrower counterparts in terms of improving their credit scores. Ways to Work borrowers who initiated loans between December 2007 and February 2008 increased their mean credit score by 36 points over a four-year period, while a group of similar non-Ways to Work borrowers increased their mean credit score by only 25 points during the same time period.

1.2.4. Return on Investment Study Key findings from the Return on Investment Study indicate the following: The projected annual return on investment of the Ways to Work program for all stakeholder groups combined is approximately 248 percent, or $2.48 for every $1 invested. Taxpayers benefit from a projected annual savings of approximately $18.2 million from reduced enrollment in public assistance of families who participated in the Ways to Work program between 2007 and 2010. Borrower benefits accruing from increased access to credit is projected to total over $30 million annually, $13.7 million of which stems from direct access to additional loans.

1.3. Conclusions and Recommendations Taken together, the findings from these studies demonstrate the degree to which the Ways to Work program provides borrowers with the tools, knowledge, and opportunities to improve their economic situations. The Program Outcomes Study indicates that the car and the loan allow borrowers to improve their employment, educational attainment, and financial management skills. Qualitative responses from the borrower survey illustrate the deep appreciation borrowers have for the respect and support shown to them by loan officers at the local sites and how many of them have used the car as a stepping stone to greater economic security. Results from the December 2011

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Ways to Work 2011 Evaluation Executive Summary

Credit Impact Study demonstrate that Ways to Work borrowers who do not default on their loans are able to improve their credit scores within a short period of time after receiving the loan and continue to do so in the years after their loan. The Return on Investment Study concludes that Ways to Work delivers a significant positive impact for its stakeholders. During the process of conducting these studies, other questions for further research and evaluation surfaced. Some of these questions could be answered in the near future by collecting a few more pieces of data at the local site level, while others would require a more significant investment. On a programmatic level, as the Ways to Work model becomes a standard for lending practices for at-risk populations, what changes are needed to the Ways to Work GreenLight database to increase the capture of evidence to support best practices for the creditlending field? In what ways can data from TransUnion be better leveraged to benchmark program performance and track longitudinal outcomes? Many of the local sites report employing targeted, innovative solutions to screening applicants, supporting borrowers, and encouraging on-time loan payments. Which of these solutions are the most effective, and under what circumstances? On a practice level, both the 2006 and 2011 evaluations found that borrowers took out new loans after receiving the Ways to Work loan, but little is known about the terms and sources of these loans. Are borrowers now accessing loans from mainstream lenders with non-predatory rates? As the children of early Ways to Work borrowers enter adulthood, how are their economic and educational situations different from those of their parents at that age? What is the long-term impact of participation in Ways to Work on reducing generational poverty? The Ways to Work organization and staff continue to demonstrate a commitment to addressing these and other important questions for the field. The studies reported in this evaluation provide a starting point for further exploration.

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Program Outcomes Study

Ways to Work 2011 Program Outcomes Study

2. Program Outcomes Study 2.1. Introduction In the 2011 Ways to Work Evaluation, the Program Outcomes Study examines the extent to which the program is having its intended effect and through what activities this effect is generated. The two primary research questions that this study intends to address are: 1. What are the short-term individual and family outcomes associated with participation in the Ways to Work program? Is there a link between program activities and outcomes for borrowers? 2. In what ways are individuals who participate in the Ways to Work program able to achieve a higher degree of economic security (e.g., income covers expenses, saving for future goals, ability to withstand unexpected financial crises)? The data for this study are drawn from two surveys: A survey of senior loan coordinators at the Ways to Work local sites A survey of recent Ways to Work borrowers This study describes key aspects of the operation of the Ways to Work Program model, beginning with a description of the network structure focusing on recent changes to the lending model, which may influence borrower perspectives regarding program delivery. We then provide a description of the characteristics of individuals who receive Ways to Work loans, along with their perceptions gathered from a borrowers’ survey. We then compare the findings from the current evaluation with findings from the 2006 Ways to Work Evaluation. Finally, we provide a discussion of trends in service delivery at sites where a higher percentage of survey respondents have increased their education or income or decreased their use of public assistance since receiving their Ways to Work loan.

2.1.1. Methods ICF surveyed senior loan coordinators at local Ways to Work sites about their approach to delivering the program. We invited all 29 active sites that had made loans during the 2007 to 2010 time period to participate. The survey asked about program staffing, partnerships with other agencies in the community, time devoted to program activities, and the data management systems that had recently been implemented across all sites. We conducted the survey online between July and August 2011 and received a 100-percent response rate. We sent the borrower survey to 1,530 of the borrowers who received their Ways to Work loans between January 1, 2007 and December 31, 2010. We chose this start date to avoid overlap with the 2006 evaluation survey population, and we chose the ending date to ensure that all borrowers had had their car and loan for at least six months. We included all borrowers for whom the Ways to Work national office had a mailing address and baseline annual gross income data during this time period. Borrowers were asked to complete the survey between July 1 and August 5, 2011. A total of 267 surveys were returned undeliverable by the Post Office. The response rate for deliverable surveys was 35 percent, which is twice the response rate of the 2006 borrowers’ survey. See Figure 2-1 for borrower survey population figures. December 2011

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Ways to Work 2011 Program Outcomes Study Figure 2-1. Borrower Survey Population Figures Population

Number

Surveys mailed to borrowers

1,530

Undeliverable surveys

267

Responses received from borrowers

445

Source: 2011 Ways to Work Borrower Survey

The survey queried borrowers about their experiences before and after the Ways to Work loan on a variety of topics, including income, education, work participation, use of public assistance, use of mainstream financial services, and financial goals. The survey also explored their perception of the impact the car purchased with the Ways to Work loan has had on their current situation and their experience with the program. The borrowers were given an opportunity to provide additional comments or suggestions for improving the Ways to Work program, excerpts of which are quoted throughout this report. In addition, nine borrowers that responded to the survey were interviewed by telephone for 30 minutes in August 2011. They were asked to describe what changes, if any, resulted from receiving a Ways to Work loan. Specifically, they were asked about their experience buying and owning a car, how the program may have helped them continue their education, how the financial education provided by the program may have helped them in any way, and for general feedback on the program. Finally, to put both of these streams of data (i.e., loan coordinator and borrower survey data) into perspective, we conducted community-level research about the economic environment under which the borrowers and sites were operating.

2.2. Roles of the National Office and Local Sites in Program Delivery The Ways to Work network consists of a national office in Milwaukee, Wisconsin, and local sites across the country. The national office supports the local sites in a variety of ways, as explained in the following section, and seeks to raise the visibility of the Ways to Work program nationally. The local sites work directly with applicants and borrowers.

2.2.1. Role of the National Office Since the establishment of Ways to Work, Inc. in 1998 as an independent 501(c)3, the role of the national office has been to oversee the program’s evolution on a national scale. It performs this role by selecting and supporting local sites, fund development, and program stewardship. Ways to Work, Inc. is a member of the nonprofit holding company, Families International, Inc., along with United Neighborhood Centers of America, FEI Behavioral Health, and the Alliance for Children and Families. Ways to Work is most closely aligned with the Alliance for Children and Families, a membership organization of private nonprofit human service organizations that work to build strong communities. All Ways to Work local site host agencies are members of the Alliance for Children and Families. The Ways to Work national office utilizes staff from Families International in technical areas such as finance, human resources, and information technology (IT) systems.

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Ways to Work 2011 Program Outcomes Study

Ways to Work has 11 staff members, organized into teams on 1) business development and marketing, 2) operations, and 3) funding support services. The focus of these three teams is to develop and support the local sites. Ways to Work has been developed as a ―program-in-a-box‖ model so that it can be effectively replicated at local host agencies with specific inputs, expectations, and procedures. To ensure a high level of quality across all the local sites, the national office supports them by providing ongoing training and consultation on issues such as program management, staffing, and risk management. The primary fundraising responsibility of the national office is to secure sufficient loan capital, but it also facilitates pass-through grants of operational funding support, such as the federal Job Access Reverse Commute (JARC) funds. The role of the national office in lending and providing IT systems will be discussed in Section 2.2.3, Establishment of Centralized Lending.

2.2.2. Role of the Local Sites As of August 2011, there were 43 local Ways to Work sites in operation in 22 states. As mentioned previously, local sites are ―hosted‖ at nonprofits—usually family service organizations—that are members of the Alliance for Children and Families. The staff that operate the local Ways to Work program are employees of the host agency, and the degree to which they work full time on Ways to Work varies, ranging from two staff working a total of 0.6 full-time equivalents (FTE) to five staff working 4.5 FTE. Fundraising to operate a local site, including the salaries of the program staff, equipment, supplies, and marketing, is handled by local site program staff, often with the support of the host agency. The local sites are the clientfacing side of Ways to Work; they are the points of contact by which borrowers experience the program. ASSESS BORROWER MOTIVATION AT INTAKE Sites report that the overall financial status of the applicant and the employment status of the applicant are the most important elements in loan committees’ decision whether or not to make a Ways to Work loan. Sites report spending the most time on screening and orientation and processing loan application materials during the loan application process.

Ways to Work characterizes its mission as ―social-purpose lending.‖ Social-purpose lending involves making loans at below-market rates for causes that benefit society. Helping low-income working families buy cars is Ways to Work’s way of benefitting society. Social-purpose lending seeks to achieve an impact while remaining relatively sustainable. In the case of Ways to Work, the sustainability comes in part from the 8 percent interest rate that is charged to borrowers. Ways to Work sees social-purpose lending as an alternative to traditional human services delivery—not giving low-income families a car, but giving them the opportunity to buy a car. Ways to Work has developed a screening process for identifying which applicants are ready for the commitment of receiving a Ways to Work loan and are likely to be able to pay it back, but because the program works with borrowers with categorically low credit scores, they cannot use credit scores as a method for screening. Instead they rely on character-based lending, where loan decisions are made based on demonstrated work history and evidence of personal initiative. Ways to Work requires that its borrowers be employed for at least six months or be enrolled in an education or training program. Borrowers must have sufficient cash flow to repay the loan, as determined when they develop a household budget with their loan coordinator as part of the application process. Loan coordinators also review applicants’ credit reports with them, and applicants are asked to develop a personal statement about why they should be December 2011

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Ways to Work 2011 Program Outcomes Study

chosen for a loan. The loan committee reviews the budget, credit report, and personal statement, and the committee decides if the applicant will receive a loan and for what amount. The borrowers’ compliance with all the steps of the application process and ability to meet deadlines is part of what the loan committee “This program gave me an opportunity to provide takes into consideration. Ways to Work believes adequate transportation for my children to prosper this intensive screening process is part of what and become more well-rounded community allows the program to keep its default rate below members. I lost my job about two weeks after my 12 percent. first Ways to Work payment. I struggled to make the monthly payments. It was a slow process but I did it, to prove I could be more responsible than in the past and how grateful I was that someone trusted me enough to give me another chance. Thank you so very much.”

To understand where in the process loan coordinators are investing their time, local sites were asked about the percentage of time they spend on various aspects of the loan application process. On average sites indicate that they spend the most time on screening and orientation (19 percent) and processing loan application materials (19 percent). Other aspects include advertising and recruitment (15 percent), helping the applicant develop a household budget (16 percent), working with the loan committee (11 percent), and processing approved loans (13 percent). These data show where local sites are spending their time in the loan application process. Sites were also asked to rate the relative importance of each element of the loan application in determining whether or not to make a loan, on a scale from 1 (―not very important‖) to 3 (―very important‖). The two most highly rated elements are the overall financial status of the applicant, which the sites rate on average 4.4 out of 5 for its importance in the loan decision, and the employment status of the loan applicant, which the sites rate on average 4.3 out of 5. The ratings of the other factors are shown in Figure 2-2. This indicates that the loan committees place a relatively high amount of importance on the borrower’s expected ability to repay the loan.

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Ways to Work 2011 Program Outcomes Study Figure 2-2. Average Rating of Factors in Loan Committee’s Decision

Source: 2011 Ways to Work Local Site Survey

PROVIDE CAR MAINTENANCE COUNSELING All but one site indicate that they provide guidelines to borrowers about the kind of car they can purchase with their Ways to Work loan (i.e., in terms of age or mileage). More than three-quarters of the sites (78 percent) place some restriction on the source from which borrowers can purchase their cars; the most common (39 percent) is to require that the car be purchased from a car dealer.

The Ways to Work loan is not formally closed until the borrower confirms the selection of a car and insurance provider. The car serves as collateral on the loan, and a poorly functioning vehicle may need costly repairs. Local sites provide varying levels of guidance to borrowers in the process of selecting their cars and various forms of assistance with maintaining their cars. When asked about the assistance they provide to borrowers in finding a car, 79 percent of sites indicate that they do help borrowers select a car to purchase. Two-thirds (66 percent) also indicate that they help borrowers find affordable car insurance and help them to service/repair the car. The prevalence of other types of services is reflected in Figure 2-3.

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Ways to Work 2011 Program Outcomes Study Figure 2-3. Percent of Sites Offering Assistance With Finding and Maintaining a Car 100% 90%

Percent of Sites

80% 70%

79% 66%

66%

60% 50%

40%

34%

30%

21%

20% 7%

10% 0% Helping to Select Finding a Car to Purchase Affordable Car Insurance

Helping to Identifying Useful Service/Repair Coupons and the Car Discounts

Offering Car Maintenance Classes

Other

Type of Service Source: 2011 Ways to Work Local Site Survey

Local sites were then queried about the guidance they provide to borrowers about the cars they buy and where to buy them. All but one site indicate that they provide guidelines to borrowers about the kind of car they can purchase with their Ways to Work loan (i.e., in terms of age or mileage). Fifty-seven (57) percent of sites that provide guidelines do so verbally; 43 percent provide written guidelines. Local sites were also queried about where borrowers are allowed to go to get an inspection confirming that the car meets these guidelines. Fifty (50) percent of local sites that provide guidelines about the cars that can be purchased also require that the inspection be done by a mechanic/garage on a list of mechanics/garages that they have vetted. Another common response about guidelines for inspections is that the garage must be listed in the phonebook or that it must be independent of the seller. Finally, local sites were asked what, if any, requirements they impose about the sources from which borrowers can purchase cars. Thirty-nine (39) percent of sites indicate the car must be purchased from a car dealer, and an additional 18 percent require that it be from a car dealer they have vetted. Twenty-two (22) percent of sites do not impose any requirements about the sources from which borrowers can purchase. Other sites provide guidance in the form of providing a list of recommended dealers, blacklisting dealers they have had problems with in the past, and prohibiting the purchase of cars from out of state, the Internet, or vehicle auctions.

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Ways to Work 2011 Program Outcomes Study

PROVIDE LOAN PAYMENT COUNSELING AND CASE MANAGEMENT 37 percent of sites report checking the FIS, Inc. loan tracking platform daily. To support borrowers who are not on track for repaying their loans, sites report reviewing their household budgets, making referrals to appropriate social services, providing support and counseling, and renegotiating payment plans.

As mentioned previously, Ways to Work has a default rate of less than 12 percent nationally. By comparison, the 2010 average industry default rate for Buy Here, Pay Here car dealers was 30 percent.1 Both lenders work with similar borrowers with distressed credit histories. Ways to Work believes that the deep case management provided by local sites is the other piece of its model that encourages such a high repayment rate among its borrowers. Since 1998, the Ways to Work national office has placed more emphasis on collecting the loan in its entirety or repossessing vehicles. Early experience with being less strict about repayment led to abuses of the program and high default rates, according to national office staff, which threatened the financial sustainability of the program. They believe the repayment rate is attributable in part to the firm but nurturing accountability process adopted by the local sites. Local sites are able to access loan payment information from the FIS, Inc. loan tracking platform, which is updated on a daily basis. When asked how often they check the system for delinquent borrowers’ information, 48 percent of the 27 responding sites indicate they check it weekly, 37 percent indicate daily, and 11 percent indicate several times a week. One site indicates that it checks it rarely. Local sites were asked what measures they take to ensure loan repayment. Ninety (90) percent of sites said that they reposess the car when loan payments are not made. To prevent having to take that drastic measure, though, sites use other tactics. Forty-five (45) percent of sites send reminders to borrowers are payment due dates, and 55 percent of sites renegotiate loan repayment terms with borrowers. Other tactics reported include providing incentives to borrowers to ensure loan repayment, assuming loans from the national office when loan payments are not made, and keeping in contact with borrowers throughout the month. One site uses technology to remind delinquent borrowers to get in touch with their loan coordinator: with the GPS ―On-Time‖ device it installs in cars, local site staff can prevent cars from starting when the borrower is late making his or her monthly payment and has been avoiding the loan coordinator’s attempts to contact them. When asked an open-ended question about what kinds of support they provide to borrowers who are not on track to repay their loans, the most common responses were reviewing the borrowers’ household budget (48 percent), making referrals to appropriate social services (38 percent), providing support and counseling (34 percent), and renegotiating the payment plan (28 percent). It is this coaching—financial and emotional—that is at the heart of Ways to Work’s lending program. In the survey, local sites were queried as to how they assist borrowers who need additional supports and services—by providing a program or service directly or referring them to other 1

National Alliance of Buy Here, Pay Here Dealers. (2010). Buy Here, Pay Here industry benchmarks/trends. Retrieved from http://www.sgcaccounting.com/Resources/BHPHBenchmarks2010.pdf.

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providers in the community. Among the 29 sites, the most common supports and services to offer in-house are financial literacy classes (86 percent), credit repair (62 percent), and family counseling (54 percent). Supports and services most commonly offered by referral to outside agencies are helping borrowers access public benefits (83 percent), helping borrowers access medical services (78 percent), and job training (75 percent). The supports and services least likely to be available to borrowers through their Ways to Work sites according to the local sites survey are day care and job retention (see Figure 2-4). Figure 2-4. Percent of Sites Offering Additional Supports and Services, Directly and by Referral Services

Direct Assistance

Referral to Outside Agencies

Financial literacy classes

86%

14%

Credit repair

62%

34%

Family counseling

54%

36%

Life skills (goals, action steps)

50%

36%

Other

43%

29%

Access to affordable housing

29%

64%

Job search

25%

61%

Job retention

14%

54%

Access to public benefits

10%

83%

Job training

7%

75%

Education (GED/college)

7%

71%

Access to medical services

4%

78%

Day care

4%

61%

Source: 2011 Ways to Work Local Site Survey

DELIVER FINANCIAL EDUCATION AND CREDIT EDUCATION Financial education is most commonly provided to borrowers as formal classes taught by Ways to Work or host agency staff, and informally by Ways to Work staff. Borrowers receive on average 2 hours of formal financial education class time, and 1.2 hours of informal financial counseling.

Financial education is part of the programming that every borrower has to complete, including developing a household budget in partnership with their loan officer. The financial education activity has two purposes: 1) to make certain that the borrower has sufficient income to pay back their loan and 2) to give the borrower budgeting skills and understanding so they can use it to guide future financial decisions. Sites deliver financial education in a range of formats and may offer multiple options to borrowers (see Figure 2-5). Most commonly, sites indicate that financial literacy classes are provided by Ways to Work or host agency staff (83 percent). Also common is to have the classes provided by a financial partner (59 percent) or through referral to other agencies (45 percent). Most sites (83 percent) indicate that they augment the classes with financial literacy provided informally by Ways to Work staff (i.e., as part of the loan interview or through counseling), but no site lists that as the sole source of financial education available to their borrowers. Self-study materials (i.e., via workbooks, online, CD-ROM) are also used, though not as frequently (34 percent), for delivering financial education. Sites indicate that participating in a December 2011

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financial literacy class—taught by Ways to Work or host agency staff, financial partners, or referral partners—entails two hours of class time on average, and clients at sites offering informal financial literacy training receive 1.2 hours of counseling on average. Figure 2-5. Delivery Method for Financial Literacy Training

Other

Delivery Method

Materials provided for self-study

Referral to other agencies/institutions

3%

34%

45%

Classes provided by a financial partner

59%

Provided informally by Ways to Work staff

83%

Classes provided by Ways to Work or host agency staff

83% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent

Source: 2011 Ways to Work Local Site Survey

When asked what financial education curricula they use, sites indicate that the Federal Deposit Insurance Corporation’s (FDIC’s) MoneySmart is the most popular curriculum; 28 percent of sites use it exclusively. Another option available to all local sites for financial education is Ways to Success, a curriculum developed and co-branded by M&I Bank for Ways to Work. Twentyone (21) percent of sites exclusively use the Ways to Success curriculum, and an additional 24 percent use it in combination with FDIC MoneySmart or another curriculum. Seventeen (17) percent of sites use other curricula made available by financial institutions, while another 10 percent of sites use internally developed curricula. Figure 2-6 presents the frequency of use of the various curricula.

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Ways to Work 2011 Program Outcomes Study Figure 2-6. Financial Education Curricula Used at Ways to Work Local Sites Curriculum

Percent of sites

FDIC MoneySmart curriculum only

28%

Ways to Success curriculum only

21%

Ways to Success curriculum supplemented with another curriculum

24%

Financial institution curriculum

17%

Internally developed curriculum

10%

Source: 2011 Ways to Work Local Site Survey

2.2.3. Centralized Lending Sites report that centralization lending at the national office has had positive effects on local programs, such as being able to make a larger number of loans, as well as negative effects, such as that borrowers can no longer make in-person deposits at branches. While fewer sites indicate that they receive financial support from their local financial institution partners than in 2006 before the establishment of centralized lending, more sites indicate that their financial institution partners conduct financial literacy training.

The Ways to Work network underwent a significant change in 2008, when it consolidated all lending at the national level. Prior to 2008, local financial institutions partnered with each local Ways to Work site to make loans. Because Ways to Work was responsible for underwriting for the loans, the local site host agency guaranteed them, meaning the organization kept an equivalent amount of funds on deposit at the local lending institution. This loan collateral was itself loaned to the host agencies by the national office and/or from matching federal funding. This model created close working relationships between the local sites and their financial institution partners. Financial institution representatives served on the loan committees that approved borrowers’ applications, taught financial education classes, and cross-sold other financial products including checking and savings accounts and follow-on loans. According to the national office, however, this decentralized system made tracking the performance of loans difficult, and each time a new site opened, the processes had to be recreated. Ways to Work established a new lending model in 2008 to address the deficiencies of this decentralized model. Now the Ways to Work national office manages and owns the entire loan portfolio across all the sites, which means that the national office sets and collects the interest rate offered to borrowers (8 percent), which subsidizes some of the cost of operations. Reporting to the credit bureaus about borrowers’ payment histories is now also centralized. Local sites are still responsible for processing loan applications, making loan decisions with the support of a loan committee, loan closing, collecting on delinquencies, and holding a default fund. Local sites have access to loan payment information updated daily through a centralized loan tracking platform operated by FIS, Inc. on a contract with the national office. This platform handles titles, payments, statements, and credit bureau reporting and is a commercially available service. Subsequent to the implementation of centralized lending, the national office also rolled out GreenLight, an online customer relationship management software, for all local sites to track interactions with borrowers and loan application information. GreenLight data can be viewed by the national office and feeds into the FIS loan tracking platform. In the survey, local sites were asked about the impact of some of these changes to their operations. One question asked how many sites use other databases or spreadsheet besides December 2011

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GreenLight to store information about Ways to Work borrowers. Eighty-six (86) percent of sites indicate they do. Among the 27 sites that indicated why they use these other data storage systems, common reasons were that they are easier to use (33 percent) and they give them more flexibility to produce the reports they need (37 percent). When asked about how the implementation of direct lending by the Ways to Work national office has influenced program activities and outcomes, local sites shared both the positive and negative effects of the change. Multiple sites indicate that it allows them to make more loans, but multiple sites also indicate that it is more difficult for borrowers to make payments now than under the previous system because they cannot make payments in person at the branch, and that the experience of working with and getting to know a financial institution—for the borrowers and for the local sites—is missed. Yet results from the local site survey indicate that financial institutions still do partner with local Ways to Work sites. Twenty-three (23) of the 29 sites surveyed indicate that they partner with one or more banks, and 18 report partnering with one or more credit unions. Only two sites indicate that they do not have any financial institution partners.

“It was very difficult for me to obtain a loan to buy a car with my poor credit. As a single mom working full time, I struggle with transportation. I'd like to thank Ways to Work and their staff for giving me the opportunity to own my first vehicle.”

According to the national office, one major reason why local banks get involved with Ways to Work is that doing so earns them credit for their Community Reinvestment Act (CRA) compliance examinations. The CRA of 1977 established the expectation that commercial banks would strive to meet the needs of all borrowers in the communities in which they are chartered, including low- and moderate-income borrowers. Local financial institution partners earn CRA credit for their financial support of Ways to Work and for their service on loan committees and teaching financial education to borrowers. In the survey, the local sites were asked to rate the activity of their financial institution partners on their site’s loan committee on a scale from 1 (―not active‖) to 3 (―very active‖). Eighty (80) percent of sites rated their financial institution partners as ―very active‖ on the loan committee, and sites established before and after 2008 are equally likely to rate their financial institution partners as such. There was a slight decrease in the percentage of sites that received funding from their local financial institution partners since the 2006 evaluation: 40 percent of the 41 responding sites in 2006 indicated they received funding from their financial institution partners, whereas 28 percent of the 29 sites in 2011 indicate the same. There was an increase in the percentage of sites that indicate that their financial institution partners conduct financial literacy training for Ways to Work borrowers: 27 percent the 41 responding sites in 2006 indicated their financial institution partners conduct financial literacy training, whereas 41 percent of the 29 sites in 2011 indicate the same.

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2.3. What Is the Starting Point for Ways to Work Borrowers? To understand the influence of the Ways to Work program, it is important to take into consideration who among the borrowers chose to respond to the survey. Four-hundred forty-five (445) individuals responded to the 2011 Ways to Work borrower survey. The overwhelming majority of respondents were female (85 percent). Forty-eight (48) percent of applicants were African A borrower in the Arlington, TX area says Ways to American, and 31 percent were white; the Work was a “livesaver” for her and her five remaining 21 percent of respondents were of children. Before getting a car, she could only work another racial group, multi-racial, or chose to not three hours a day in the evenings because she indicate a race. Eight (8) percent of respondents didn’t have transportation to her babysitter, and identified themselves as Hispanic. The average public transportation wasn’t available in her city. age of borrowers was 35 years old, with the The car is a “blessing and a necessity” that allows youngest borrower being 18 years old at the time her to now work full time and make more money. of the loan and the oldest borrower being 60 years old. Respondents were asked to describe their marital status. Fifty-two (52) percent reported being single; 22 percent were divorced, separated, or widowed; 13 percent were married; and 3 percent were living with a significant other but not married. The remaining 6 percent of respondents chose to not indicate their current marital status. Fifty-three (53) percent of these respondents had fewer than three children living in their household at the time of their loan application. Most of the borrowers (86 percent) were in the workforce without a college degree at the time of their application to the Ways to Work loan program, but many were continuing their education beyond a high school degree. Twenty-six (26) percent indicated they had attended some college or university classes, and another 18 percent indicated that they had completed some vocational school or job training or attained a professional certification at the time of their loan. Figure 2-7 shows the education attainment level of borrowers.

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Percent

Figure 2-7. Educational Attainment at Loan Application (n=401) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

26%

Some college/university courses

24%

High school degree/GED

18%

14%

9%

Some vocational Associates, Less than high school or job Bachelors, school or "other" training, including Masters, PhD, or professional other professional certification degree Educational Attainment

Source: 2011 Ways to Work Borrower Survey

All borrowers had been employed for at least six months or were enrolled in an education or training program when they received their loan. Ways to Work uses these factors as eligibility criteria to assess the borrowers’ motivation to stay employed or improve their employability. The average income for survey respondents at the time they received their loans between 2007 and 2010 was $21,592. About three-quarters (71 percent) of survey respondents received some type of public assistance before they received their loan. In terms of their use of financial products, seventy-one (71) percent of survey respondents indicated they had checking accounts and 53 percent had savings accounts at the time they applied to Ways to Work. Thirty-one (31) percent of survey respondents said they took out one or more payday loans per year before receiving the Ways to Work loan. The average VantageScore® credit score among borrowers who received loans between 2007 and 2010 was 571.2 According to administrative data collected by the local sites at intake, the most common sources of referrals for survey respondents were a social service agency (24 percent), self-referred (24 percent), and a friend (14 percent). Likewise, in the local site survey, loan coordinators told us that the most common sources of referrals were word-of-mouth from family or friends (an average of 49 percent) of referrals received across the sites, social service agencies (20 percent), and the sponsoring agency (11 percent).

2.3.1. Economic Impact of the Recent Recession The period of time covered in the 2011 Program Outcomes Study was a challenging time for most Americans. During the recession of 2008 to 2010, unemployment rates increased with the contracting economy, pushing wages down. The target population for the Ways to Work program was the most likely to be negatively affected by the recession because of its generally low degree of skill and education. Improvements in economic situation reported in this study 2

For an explanation of the VantageScore, see Section 3.1.

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occurred in spite of what has widely been considered the recession worst in U.S. history since the Great Depression of 1929 to the mid-1930s. In particular, the results reported in this study are likely to be compared to the 2006 evaluation, which saw impressive gains in income, employment, and education among respondents to the borrower survey conducted in mid-2005. The previous study of the Ways to Work program examined participant employment characteristics during the 2001 to 2005 time period, while this study examines those characteristics during the 2007 to 2010 time period. In general, the 2001 to 2005 time period was characterized by a moderate decline in economic conditions from 2001 through 2002 due to the global impacts of the terrorist attack of 9/11 but then a rapidly expanding economy from 2003 through 2005. Much of the decline during the 2001 to 2002 time period was concentrated in the financial and consumer goods sectors of the economy. The 2007 to 2010 time period was characterized by a peak in 2007 and a widespread rapid deterioration in conditions beginning in the later months of 2007 and continuing until mid-2010. Figures 2-8, 2-9, and 2-10 display some major labor market indicators for the 2001 to 2005 period and the 2007 to 2010 period, based on data from the Bureau of Labor Statistics Job Openings and Labor Turnover Survey and the Bureau’s Current Population Survey. The number of job openings—a major indicator of the availability of jobs—grew moderately between 2003 and 2005, but after peaking in 2007 it plunged between 2008 and 2010. In total, based on yearly averages, there were 19,029 job openings during the 2001 to 2005 time period and 13,319 between 2007 and 2010 (see Figure 2-8). Figure 2-8. Average Annual Job Openings in the United States, 2001 to 2010 5,000 4,500

4,390

Job Openings

4,000 3,500 2,784

3,000 2,500 2,000

1,500 1,000 2001

2003

2005

2007

2009

Year Source: Bureau of Labor Statistics Job Openings and Labor Turnover Survey

Average annual salaries also show a similar trend. In general, salaries increased moderately between 2002 and 2006 and declined significantly between 2006 and 2010. Between 2001 and 2005, the average annual salary for full-time workers increased by 2.9 percent while, between 2007 and 2010, salaries declined by 4.9 percent (see Figure 2-9).

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Ways to Work 2011 Program Outcomes Study Figure 2-9. Average Annual Salary for Full-Time Workers in the United States, 2001 to 2010 $68,000 $67,000 Yearly Salary

$66,000 $65,000

$64,299

$64,000

$63,201

$63,000 $62,000

$61,000 $60,000 2001

2003

2005

2007

2009

Year Source: Bureau of Labor Statistics Current Population Survey

Unemployment rates, as would be expected during a major recession, increased significantly between 2007 and 2010, from 4.6 percent to 9.6 percent, respectively, which is in contrast to the 2001 to 2005 time period, when unemployment rates increased moderately post-9/11 to 6.0 percent in 2003 and then dropped to 5.1 percent in 2005. Figure 2-10. Average Unemployment Rate in the United States, 2001 to 2010

Unemployment Rate

12.0% 9.6%

10.0% 8.0% 6.0%

4.7%

4.0% 2.0% 0.0% 2001

2003

2005

2007

2009

Year Source: Bureau of Labor Statistics Current Population Survey

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2.4. Findings from the Borrower Survey By connecting borrowers with a car and a loan, Ways to Work provides the tools to build selfsufficiency. In this section, we explore how the loan and the car affect various aspects of the borrowers’ loan and car experience: their employment, income, education, financial management, and the care they provide for their families.

2.4.1. Benefits of the Car Transportation is one of the biggest barriers low-income individuals face to gaining employment. According to data from the 2000 census, nearly 65 percent of U.S. households without vehicles make less than $25,000 per year, indicating that A borrower in suburban Fort Worth, Texas, knew low-income people are disproportionately she was missing out on new opportunities with her affected by transportation barriers. As company because she didn’t have her own car. metropolitan suburbs grow, and people and jobs She found out about the Ways to Work program in disperse, private transportation is often the 2010, but she wasn’t making enough money in her current position to pay back the loan. When she easiest and sometimes the only way to get told her boss about the program, he offered to give around. Low-income families without a private her an on-the-spot increase in her salary so she vehicle are often forced to rely on decentralized could qualify for the loan. Once she got her Ways public transit systems resulting in cumbersome, to Work car, this same boss gave her a promotion 3 unpredictable, and time-consuming commutes. to work in a management position at a new branch Research on the relationship between of their store across town, which itself resulted in a transportation modes and employment suggests significant pay raise. It would have been that among low-income workers of a similar skill impossible for the borrower to get this new position level, vehicle ownership is a key factor in without a car. improving wages and positive employment characteristics.4 For this reason, offering a loan for car purchase is a highly desirable ―carrot‖ for Ways to Work to use to attract low-income working families to its program. INCREASED EMPLOYMENT 93 percent of survey respondents indicate that the car purchased with the Ways to Work loan was “very helpful” for keeping a job. 86 percent of respondents are currently employed; 77 percent have one job, and 9 percent hold two jobs. Respondents report a decrease in days of work missed per month since receiving the Ways to Work loan, from an average of 1.6 days before the loan to an average of 0.3 days after the loan.

Low-income, low-skill workers like those who participate in the Ways to Work program often have trouble finding employment near their homes.5 Owning a car gives them the freedom to pursue jobs that best meet their skills, interests, and schedules. We asked borrowers about how a car has affected their ability to find and keep employment. The majority of respondents indicated that the car was very helpful for sustaining employment.

3

Blumenberg, E. & Waller, M. (2003). The long journey to work: A federal transportation policy for working families. Retrieved from http://www.brookings.edu/reports/2003/07transportation_waller.aspx. 4 Lichtenwalter, S., Koeske, G., & Sales, E. (2006). Examining transportation and employment outcomes: Evidence for moving beyond the bus pass. Journal of Poverty, 10(1), 95-106. 5 Covington, K. (2009). Spatial mismatch of the poor: An explanation of recent declines in job isolation. Journal of Urban Affairs, 31(5), 559–587. 10.1111/j.1467-9906.2009.00455. December 2011

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Borrowers were asked to rate the helpfulness of the car on a scale from 1 (―not at all helpful‖) to 3 (―very helpful‖) or ―not applicable‖ for a variety of activities, including ones related to employment. When asked about the helpfulness of the car for keeping a job, of the 414 respondents who indicated that the question was applicable, 93 percent responded that the car was ―very helpful‖ for keeping a job. When asked about the helpfulness of the car for getting a new job, of the 212 respondents who indicated that the question was applicable, 81 percent responded that the car was ―very helpful.‖ When asked about the helpfulness of the car for getting an additional job, of the 146 respondents who indicated that the question was applicable, 72 percent responded that the car was ―very helpful‖ for getting an additional job (see Figure 211). For these borrowers, ―getting a new job‖ could indicate that they secured better employment than they had when they joined the Ways to Work program because of their increased mobility or that they were able to replace lost employment. Regardless, from the perspective of borrowers, the Ways to Work program helped them become and stay employed. Figure 2-11. Car “Very Helpful” for Employment 100%

93%

90%

81%

80%

72%

Percent

70% 60% 50% 40% 30% 20% 10% 0% Keep a job (n=414)

Get a new job (n=212) Activities

Get an additional job (n=146)

Source: 2011 Ways to Work Borrower Survey

Survey results indicate that 86 percent of borrowers are currently employed. Seventy-seven (77) percent of respondents have one job, and 9 percent of respondents have two jobs. These figures represent a decrease from the 100 percent employment at the time of application to the Ways to Work program. All borrowers must have an income stream to repay their loans. Ways to Work borrowers are still faring better, employment-wise, than the general working population. Eighty-five (85) percent of the survey respondents were women, and 48 percent were African American. As of July 2011, the national employment-population ratio for women above age 20 was 54.4, meaning 54.4 percent of noninstitutionalized women in the country were employed.6 Research about the effects of the recession on employment finds that women have continued to lose jobs during the first two years of the recovery (June 2009 to June 2011),

6

U.S. Department of Labor, Bureau of Labor Statistics. (2011). Household data Figure A-1: Employment status of civilian population by sex and age, September 2011. The Employment Situation, September 2011. Retrieved from http://www.bls.gov/news.release/empsit.t01.htm.

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whereas men have gained jobs.7 Black women were particularly hard hit, experiencing a rise in unemployment during the recovery that was seven times greater than their white female peers (2.1 percent versus 0.3 percent). Borrowers were queried about the effect having a car has had on their missing days from work and tardiness. Before the Ways to Work loan, respondents averaged 1.6 days of work missed per month, while after the loan respondents miss on average 0.3 day per month (see Figure 212). Forty-eight (48) percent of respondents indicate that this reduction was primarily due to the Ways to Work car. In terms of tardiness, borrowers were asked how many days per month they arrive a half hour or more late to work or have to leave a half hour or more early from work. The average decreased from 2.1 days before the loan to 0.8 days after the loan, with 52 percent saying the reduction was primarily due to the Ways to Work car. Figure 2-12. Days Missed or Late to Work

Days Per Month

2.5 2.0

2.2 1.6

1.5 1.0

0.8 0.3

0.5

Before the loan After the loan

0.0 Average days of work Average days of work per missed per month month arriving or leaving (n=378) 0.5 hours late or early (n=335) Days Missed or Tardy Source: 2011 Ways to Work Borrower Survey

ACCESS TO EDUCATION 82 percent of survey respondents indicate that the car purchased with the Ways to Work loan was “very helpful” for completing an education or job training program. 26 percent of survey respondents indicate that they have increased their educational attainment since receiving the loan.

7

National Women’s Law Center. (2011). Employment crisis worsens for black women during the recovery. Retrieved from http://www.nwlc.org/resource/employment-crisis-worsens-black-women-during-recovery.

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Having stable employment goes a long way to ensuring economic stability for participating households. Many of the Ways to Work borrowers are in low-skilled, low-paying jobs, however, that do not offer opportunity for advancement. An expected result of the Ways to Work program is that having a car will allow borrowers to continue their education and training, leading to a well-defined career pathway with opportunity for advancement. One borrower told us how the car purchased with the Ways to Work loan has benefitted her entire

Borrowers were asked to rate the helpfulness family. The car helps the borrower get to work earlier and has helped her husband attend school of the car for continuing their education on the where he is studying for a business management same 1 to 3 scale as was used for the degree. “There are places that will help people employment questions. When asked about the who do not have good credit and they’re trying to helpfulness of the car for starting or staying in start over…you just have to look around. I looked an education or job training program, of the 202 around and I found Ways to Work.” respondents who indicated that the question was applicable, 84 percent responded that the car was ―very helpful.‖ When asked about the helpfulness of the car for completing an education or job training program, of the 171 respondents who indicated that the question was applicable, 82 percent responded that the car was ―very helpful.‖ As Figure 2-13 illustrates, one way that the Ways to Work car assists borrowers with continuing education and training is it decreases the amount of time they spend commuting to work. Decreasing commuting time frees up time to pursue other activities including education and training. When asked about the helpfulness of the car for decreasing commuting time, of the 349 respondents who indicated that the question was applicable, 87 percent responded that the car was ―very helpful.‖

Percent

Figure 2-13. Car “Very Helpful” for Education and Decreasing Commuting Time 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

87%

84%

82%

Decrease amount of time spent Start (or stay in) an education Complete an education or job commuting (to work or to an or job training program (n=202) training program (n=171) education or job training program) (n=349) Activities Source: 2011 Ways to Work Borrower Survey

According to the survey, about 26 percent of respondents (n=383) indicate that they have increased their educational attainment since receiving the loan. The most common transition was going from a high school degree to completing some college courses.

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INCREASED INCOME For survey respondents who are employed, the average increase in gross annual wages since enrollment in the Ways to Work program is 8.2 percent. 47 percent of employed respondents have increased their income since enrollment. Thirty-five (35) percent of them have increased their income by more than 10 percent. 22 percent of respondents report having received a monthly pay increase of more than $100, and an additional 17 percent have received a monthly pay increase of $1 to $99.

It is expected that helping borrowers increase their educational attainment and access better jobs will lead to increased income. To understand if having reliable transportation leads to increased income for borrowers, the survey queried borrowers, ―How much was your most recent paycheck (before taxes, health insurances, retirement savings, etc.)?‖ and ―How often are you paid?‖ The combination of these two pieces of data should provide the borrower’s gross wages, which can be compared to the gross wages reported at the time of their application to the Ways to Work program. Of the 377 respondents who gave us this information about their pay, 318 report currently earning income. The average current annual gross income from wages for these 318 respondents is $21,961.15, ranging from a high of $73,164.00 to a low of $1,668.00. The average change in gross annual wages since enrollment in the Ways to Work program for these borrowers is an increase of 8.2 percent. Examining averages obscures the significant increases in income made by some borrowers, however. From these same baseline and current gross annual wages from income figures, we determine that 47 percent of the 318 respondents have increased their income from the time they took out the Ways to Work loan to when they were surveyed. Thirty-five (35) percent of them increased their income by more than 10 percent. By comparison, the 2006 Ways to Work Evaluation found that 72 percent of the 223 respondents with full data available increased their net monthly income from the time they took out the Ways to Work loan to when they were surveyed. The respondents in the 2006 study had a baseline average net annual income of $11,904 while the respondents in the 2011 study had baseline average gross annual wages of $21,987, however. This comparison is shown in Figure 2-14. Figure 2-14. Increases in Income, 2006 Evaluation and 2011 Evaluation Evaluation Year

Number of Respondents

2006

223

Average Baseline 8 Income $11,904

2011

318

$21,987

Percent Increase

Average Income at Survey

41%

$16,785

8.2%

$23,790

Source: 2006 Ways to Work National Evaluation, 2011 Ways to Work Borrower Survey

Also contributing to the slower growth of wages for the two sets of survey respondents were the different labor market conditions during each group’s loan term, as explained in Section 2.3.1. With the U.S. economy expanding between 2002 and 2006, annual salaries for all full-time workers were on an upward trend. Starting just before the recent recession and coinciding with 8

The 2006 evaluation queried borrowers about their net wages, while the 2011 evaluation queried borrowers about their gross wages.

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Ways to Work 2011 Program Outcomes Study

the beginning of the time period examined in the 2011 study, however, average annual salaries declined significantly. Between 2001 and 2005, the average annual salary for full-time workers increased by 2.9 percent, while between 2007 and 2010 salaries declined by 4.9 percent, according to the Bureau of Labor Statistics Current Population Survey (see Figure 2-9). Another way to compare results reported in the 2006 evaluation with results reported in the 2011 evaluation is to compare any increase in income among respondents who started with commensurate wages at the time of program enrollment. Thirteen (13) employed respondents to the 2011 evaluation survey began the program with annual gross wages between $11,000 and $12,000. Their average annual gross wages at the time of the survey was $18,573, an average increase of 61 percent. Only two of these 13 experienced a decline in wages. Taken together, these results indicate three points about the change in wages associated with the Ways to Work program: 1. The program is approving loans for borrowers with a higher income at the time of application. This fact may be a response to the loan committees’ emphasis on borrowers having sufficient income to pay back the loan in full. It may also reflect the impact that the recession has had on individuals’ credit scores. 2. The differing rates of increased incomes between 2006 and 2011 have to be taken in the context of the prevailing economic conditions. Forty-seven (47) percent of employed respondents in 2011 increased their income since receiving the Ways to Work loan at a time when wages nationally fell by 4.9 percent. Seventy-two (72) percent of respondents in 2006 increased their income since receiving the Ways to Work loan at a time when wages nationally rose by 2.9 percent.9 3. More recent borrowers with baseline incomes commensurate to the average baseline income among respondents to the 2006 evaluation survey ($11,000 to $12,000) appear to have made equally strong—if not stronger—gains in pay, despite the economic downturn. Borrowers surveyed in 2011 were also asked a slightly different question about wages: if they had received a pay increase or promotion at any point in time since participating in the Ways to Work program. Twenty-two (22) percent of 417 respondents to this question report having received a monthly pay increase of greater than $100, and an additional 17 percent of respondents have received a monthly pay increase of $1 to $99. See Figure 2-15 for a count of borrowers who received a promotion or pay increases of each amount.

9

Bureau of Labor Statistics Current Population Survey. http://www.bls.gov/cps/

December 2011

21

Ways to Work 2011 Program Outcomes Study Figure 2-15. Respondents Who Received Promotions or Pay Increases (n=183)

Number of Respondents

80

71

70 60 47

50 40 30

21

24

20

20 10 0 Pay increase $1$99

Pay increase $100- Pay increase $250- Pay increase $500+ Promotion but not $249 $499 pay increase Amount of Monthly Pay Increase

Source: 2011 Ways to Work Borrower Survey

The 2011 survey also asked borrowers about their use of payday loans. Their responses provide insight on the degree to which borrowers are able to cover their expenses with their incomes. Among the 360 respondents who responded about their use of payday loans, use decreased from 1.3 payday loans per year before receiving the Ways to Work loan to 0.5 payday loans per year after receiving the Ways to Work loan. USE OF PUBLIC ASSISTANCE Survey responses indicate a 20-percent net decrease in receipt of TANF cash assistance. Survey responses indicate a 19-percent net decrease in receipt of WIC. Survey responses indicate a 4-percent net increase in receipt of SNAP benefits, but this is a much smaller increase than the 64 percent increase in receipt by households nationwide during the same time period.

Participation in the Ways to Work program is associated with a decrease in use of many forms of public assistance. As Figure 2-16 illustrates, there was a 20-percent net decrease in receipt of TANF cash assistance (the monthly cash benefit), a 19-percent net decrease in the receipt of WIC (the Special Supplemental Nutrition Program for Women, Infants and Children), and a 7percent net decrease in use of LIHEAP (the Low Income Home Energy Assistance Program). There were net increases in the use of other public assistance programs, though most of them were smaller: a 10-percent increase in the use of the School Breakfast and Lunch program and a 7 percent increase in use of Medicaid services. While there was a net increase in the use of SNAP benefits (Supplemental Nutrition Assistance Program, or food stamps) of 4 percent, it was dramatically lower than the nationwide increase in use of SNAP during roughly the same time period: between July 2008 and July 2011, use of SNAP benefits by households nationwide increased by 64 percent.10

10

U.S. Department of Agriculture, Food and Nutrition Service. (2011). Supplemental nutrition assistance program: Data as of September 29, 2011. Retrieved from http://www.fns.usda.gov/pd/34SNAPmonthly.htm.

December 2011

22

Ways to Work 2011 Program Outcomes Study Figure 2-16. Use of Public Assistance Before and After Ways to Work Loan

% Leavers

Did Not Receive Assistance Before Loan, But Do Now (Starters)

% Starters

Net Change in Use

96 123 65 68 33 90

25% 32% 17% 18% 9% 23%

18 51 26 30 2 63

5% 13% 7% 8% 1% 16%

-20% -19% -10% -10% -8% -7%

93

24%

82

21%

-3%

18 66

5% 17%

6 59

2% 15%

-3% -2%

41

11%

41

11%

0%

21

6%

30

8%

2%

109 84

26% 21%

127 112

30% 28%

4% 7%

77

19%

113

29%

10%

Received Assistance Before Loan, But Not Now (Leavers)

TANF - Cash assistance (n=391) WIC (n=381) TANF - Supportive services (n=378) Head Start (n=385) TANF - Diversion (n=369) LIHEAP (n=398) Earned Income Tax Credit (EITC) (n=389) Child Welfare Services (n=370) Housing Assistance (n=391) State Children’s Health Insurance Program (SCHIP) (n=377) Supplemental Security Income (SSI) (n=373) SNAP (n=418) Medicaid (n=402) School Breakfast and Lunch (n=395)

Form of Public Assistance

Source: 2011 Ways to Work Borrower Survey

IMPROVED QUALITY OF LIFE 95 percent of survey respondents indicate that the car purchased with the Ways to Work loan was “very helpful” for taking children to school, appointments, and other activities. 93 percent of survey respondents indicate that the car purchased with the Ways to Work loan was “very helpful” for improving quality of life overall.

In addition to the economic benefits of participating in the Ways to Work program, survey respondents also indicated that the program has had a positive impact on their family and personal lives. Reducing the time borrowers spend commuting frees time for family involvement. In addition to its uses for education and employment purposes, borrowers can also use the car to provide better care for their children. Borrowers were asked to rate the helpfulness of the Ways to Work car for caring for their children, spending time with family and friends, and improving their quality of life overall on the same 1 to 3 scale used for employment and education. When asked about the helpfulness of the car for spending more time with family and friends, of the 406 respondents who indicated that the question was applicable, 90 percent respond that the car was ―very helpful.‖ When asked about the helpfulness of the car for improving their quality of life overall, of the 435 respondents who indicated that the question was applicable, 93 percent respond that the car December 2011

23

Ways to Work 2011 Program Outcomes Study

was ―very helpful.‖ When asked about the helpfulness of the car for taking children to school, appointments, or other activities, of the 425 respondents who indicated that the question was applicable, 95 percent respond that the car was ―very helpful.‖ When asked about the helpfulness of the car for doing more things for or with their children, of the 426 respondents who indicated that the question was applicable, 95 percent respond that the car was ―very helpful‖ (see Figure 2-17). Figure 2-17. Car “Very Helpful” for Improving Quality of Life 100% 98%

Percent

96%

95%

95% 93%

94% 92%

90%

90% 88% 86% 84% Take children to school, Do more things for or Improve your quality of Spend more time with appointments, and with children (n=426) life overall (n=435) family and friends other activities (n=425) (n=406) Activities

Source: 2011 Ways to Work Borrower Survey

The survey also asked borrowers about the amount of time they spend doing volunteer work. Among the 363 respondents who responded to this question, volunteering increased from 2.6 hours per month on average before receiving the Ways to Work loan to 5.2 hours per month on average after receiving the Ways to Work loan.

2.4.2. Benefits of Loan While the car is the more tangible benefit “I am so grateful for the Ways to Work program! provided to Ways to Work borrowers, the loan Because of this program, it's been so much easier itself also helps borrowers improve their getting to work, bringing my children to school and financial situation. Because Ways to Work bringing my youngest son to daycare. Also, since reports loan repayment directly to two of the not having a large monthly car payment I'm able to three credit bureaus (TransUnion and pay down my student loans – which were sliding Experian), making on-time payments builds a into default. Thank you!” positive credit history and can increase borrowers’ credit scores. Increased credit scores allow borrowers to access traditional financial markets and invest in additional assets. Ways to Work prepares borrowers to successfully pay back their loans by teaching them better financial management skills.

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24

Ways to Work 2011 Program Outcomes Study

INCREASED FINANCIAL LITERACY 90 percent of survey respondents indicate that the Ways to Work program helped them improve their financial situation. 53 percent of survey respondents indicate they are currently saving for a rainy day/emergencies. 61 percent of respondents indicate that they have pulled their credit report in the past year.

Borrowers were asked to what extent the Ways to Work program helped them ―understand their financial situation (for example, their household spending patterns or the impact of their credit score)‖ and to what extent it helped them ―improve their financial situation (for example, stick to a budget or raise their credit score).‖ Ninety (90) percent of respondents express that the program helped them in each of these ways (see Figure 2-18). Figure 2-18. Extent to Which Ways to Work Helped Borrowers With Their Financial Situation 100% 90% 80% 70% 57%

60%

56% Very much

50% 40%

Somewhat

34%

33%

Not much

30% 20%

10%

10%

10% 0%

Understand Financial Situation (n=435)

Improve Financial Situation (n=434)

Source: 2011 Ways to Work Borrower Survey

Borrowers were also asked to rate the helpfulness of the financial education in providing them with information and skills in six specific areas of financial management, on a scale from 1 (―not at all helpful‖) to 3 (―very helpful‖). Of the 305 who answered regarding the helpfulness of the financial education for paying back their loan, 68 percent indicated that the education was ―very helpful.‖ Of the 302 who answered regarding the helpfulness of the financial education for creating a budget, 65 percent indicated that it was ―very helpful.‖ The rest of the responses are represented in Figure 2-19. December 2011

One borrower says she uses what she learned from Ways to Work to help her save money for emergencies, for retirement, and maybe even to start her own small business. She now teaches her son how to budget and save for things he wants by giving him a modest allowance. In general, she says, “I pay more attention to what’s going on financially, and at the bank. Before I wouldn’t really pay attention because I didn’t have any money and I didn’t want to deal with bills. But now I’ve built my credit back up and I’m more on top of everything…I feel more stable.”

25

Ways to Work 2011 Program Outcomes Study Figure 2-19. Financial Education “Very Helpful” for Financial Management Activities 100% 90% 80%

Percent

70%

68%

65%

61%

61%

60%

60%

55%

50% 40% 30% 20% 10% 0% Paying back Creating a Reading a Avoiding future Managing your Using banking your loan budget (n=302) credit report debt (n=304) money (n=308) services (n=305) (n=303) (n=298) Activities

Source: 2011 Ways to Work Borrower Survey

Borrowers’ responses to a series of questions about their financial habits also indicate that they are practicing the behaviors encouraged in basic financial literacy classes. Fifty-three (53) percent of respondents (n=300) indicate they are currently saving for a rainy day/emergencies. Additionally, 61 percent of respondents (n=299) indicate that they have pulled their credit report in the past year.11 INCREASED ACCESS TO TRADITIONAL FINANCIAL MARKETS Among the survey respondents who did not have a checking account at the time they received their Ways to Work loan, 50 percent have since opened them. Among the survey respondents who indicate that they are actively saving for a goal and specified where they deposit those savings, 64 percent are saving in an account at a mainstream financial institution (a bank or credit union). 24 percent of survey respondents indicate that they have taken out a new loan since receiving the Ways to Work loan.

The Ways to Work program appears to get borrowers more engaged with mainstream financial services. Of the 114 survey respondents who did not have a checking account at the time of the Ways to Work loan, 50 percent have opened a checking account since receiving the loan. Of the 194 respondents who did not have a savings account at the time of the Ways to Work loan, 35 percent have opened a savings account since receiving the loan. Of the 273 respondents who indicate that they are actively saving for a goal and specified where they deposit those

11

It is possible that some survey respondents might have reported their Ways to Work application as the last time they pulled their credit report. Among the 299 responses to this question, the date given for the last time the borrower had pulled their credit report coincided with the month of their loan start date in only 5 cases.

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26

Ways to Work 2011 Program Outcomes Study

savings, 64 percent are saving in a bank or credit union account, and 21 percent are saving in an employer-sponsored retirement plan. “Since I have paid off my Ways to Work loan, I was Borrowers were also queried about if they have able to purchase a 2010 Dodge without a cosigner. taken out another loan since the Ways to Work I understand my credit and have been working to loan. Twenty-four (24) percent of respondents said better it. Thank you! This is a great program and I they had. Among those who told us what the new recommend it to everyone.” loan was for, the two most popular reasons were purchasing another car (42 percent) and going to school (21 percent). Ten (10) percent indicate they have taken out a loan to buy a house. Respondents may have given more than one reason for taking out loans.

The 2006 Ways to Work National Evaluation found that two-thirds (67 percent) of all borrowers initiated a new account (checking, savings, credit card) or obtained a new loan since receiving their Ways to Work car purchase loan. In the 2011 survey, a slightly smaller percentage (58 percent) of respondents indicate that they have opened a new checking or savings account, obtained a new credit card, or taken out a new loan since receiving the Ways to Work loan. LOAN REPAYMENT A higher proportion of survey respondents with car purchase loans of greater than $4,000 are still driving their cars, compared with respondents with loans of smaller amounts.

Among the 445 survey respondents, most borrowers (91 percent) received loans for car purchases, with a small number made for car repairs or other purposes. Most car purchase borrowers (95 percent) received loans with loan periods of 24 to 30 months. None were longer than 30 months. Among survey respondents who received loans for a car purchase, 31 percent received loans for less than $3,000; 20 percent received loans for $3,000 to $3,999; 37 percent received loans for $4,000; and the remaining 12 percent received loans for more than $4,000. Three-hundred and nine (309) people indicated they are still driving the car they bought through the Ways to Work program, representing 70 percent of survey respondents. As seen in Figure 2-20, a higher proportion (90 percent) of respondents with car purchase loans of greater than $4,000 are still driving their cars than respondents with loans of smaller amounts. In addition to reinforcing the presumption that investing a larger amount of money in a car increases its reliability, this finding could also be related to the relative age of the cars; Ways to Work began offering loans of above $4,000 in April 2009.

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27

Ways to Work 2011 Program Outcomes Study

Figure 2-20. Respondents Still Driving their Ways to Work Car, by Car Purchase Loan Amount 100%

Percent of Respondents

90%

90% 86%

84%

77%

80% 70%

Still Driving Vehicle

60% 50%

Not Still Driving Vehicle

40% 30% 20%

23% 14%

16% 10%

10% 0% $4,000 (n=41)

Loan Amount for Car Purchase Source: GreenLight data, 2011 Ways to Work Borrower Survey

2.4.3. Comparison of Findings From 2006 and 2011 Evaluations Figure 2-21 provides a comparison of selected findings from the 2006 and 2011 evaluations. The differences in results may reflect both changes in the program and also changes in larger economic conditions. The economic conditions that should be taken into consideration when comparing findings from these two time periods—changes in the levels of annual job openings, average annual salaries, and the unemployment rate—have been explored thoroughly in Section 2.3.1 and throughout the study.

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28

Ways to Work 2011 Program Outcomes Study Figure 2-21. Comparison of Selected Findings From 2006 and 2011 Ways to Work Evaluations 2006 Evaluation Findings

2011 Evaluation Findings

(performed by OMG Center for Collaborative Learning)

Income and Self-Sufficiency Almost three-quarters of participants report higher net monthly income. Borrowers average a 41-percent increase in income (take-home pay) (average baseline net annual income: $11,904). Eighty-seven (87) percent of borrowers continue to sustain themselves without public cash assistance despite receiving it before entering the program.

One half of employed respondents report higher gross monthly income. Over a third (35 percent) of employed respondents report an increase in income of more than 10 percent. Respondents average an 8.2-percent increase in wages (average baseline gross annual wages: $21,987) since receiving their Ways to Work loan. Eighty-two (82) percent of survey respondents sustain themselves without TANF cash assistance despite receiving it before receiving their Ways to Work loan.

Employment Ninety (90) percent of borrowers report their Ways to Work car allowed them to maintain or improve their employment circumstances. Fifty-five (55) percent have found more responsibility or higher pay.

Ninety-four (94) percent of respondents indicate that their Ways to Work car helped them to maintain or improve their employment circumstances. Forty-four (44) percent of respondents indicate they have received a promotion or pay increase since receiving the Ways to Work loan.

Education Fifty (50) percent of borrowers accessed further education or job training thanks to their Ways to Work car.

Twenty-six (26) percent of survey respondents indicate that they have increased their educational attainment since receiving the Ways to Work loan.

Departure from Predatory Lending/ Use of Mainstream Financial Services Two-thirds (or roughly 66 percent) of all borrowers have initiated a new account (checking, savings, or credit card) or obtained a new loan since receiving their Ways to Work loan.

Fifty-eight (58) percent of respondents indicate that they have opened a new checking or savings account, obtained a new credit card, or taken out a new loan since receiving the Ways to Work loan.

Care of Children Nearly all borrowers find that the car enhances their ability to make sure their children get to school on time, take them to medical appointments, and access better child care services.

Nearly all respondents indicate that the car helps them provide better care for their children and do more things for or with their children.

Source: 2006 Ways to Work National Evaluation, 2011 Ways to Work Borrower Survey

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Ways to Work 2011 Program Outcomes Study

2.5. What Local Site Activities Produce Successful Participants? The site-level borrower default rate during the study period was significantly lower for the “successful sites” than for other responding sites: 3.7 percent compared to 7.9 percent, respectively. Successful sites spent more time on average helping borrowers apply for loans and providing and/or referring them to social services and less time on monitoring non-delinquent loans and counseling delinquent borrowers, compared to the other sites.

To understand how local Ways to Work sites can most effectively coach their borrowers to achieve success, we looked for trends in activities and services among those sites that produced a higher proportion of successful participants. For this analysis, we defined successful participants as those who, since joining the Ways to Work program, have achieved one or more of the following: Increased their salary by at least 10 percent Stopped receiving public assistance Increased their educational attainment Among the survey respondents, 231 borrowers meet at least one of these criteria, or roughly 51 percent of the total respondents. We then calculated the percentage of each sites’ respondents who fell in this successful participant classification and the number of respondents necessary to be considered statistically significant at each site. Four of the 29 sites were classified as being both successful and containing enough respondents to be considered statistically significant. Successful sites are defined as sites that have an average success rate for borrowers that is at least two percentage points higher than the average success rate across all sites combined (51 percent) and that have at least 19 respondents. The other sites should not be viewed as being unsuccessful; the four identified were simply more successful than the average. Several other sites had success rates well above the average but are not included in the analysis of successful sites because they had too few respondents to achieve a reasonable level of confidence. Figure 2-22 indicates the number of successful participant survey respondents, total number of responding borrowers, and the resulting percentage of successful participants for the four successful sites. Three had success rates significantly above the average for all sites, including Local Site A and Local Site C with 62 percent success rates and Local Site B at 63 percent. The final site, Local Site D, had a success rate that was three percentage points above the average, 54 percent, but had the greatest number of successful participants among all sites, with 30.

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30

Ways to Work 2011 Program Outcomes Study Figure 2-22. Successful Sites Number of Responding Successful Participants

Total Number of Responding Borrowers

Percent Successful

Local Site A

21

34

62%

Local Site B

12

19

63%

Local Site C

16

26

62%

Local Site D

30

56

54%

Organization

Source: 2011 Ways to Work Local Site Survey, 2011 Way to Work Borrower Survey

One trend that is clearly evident is the difference in the borrower default rate between successful sites and the other sites. The site-level borrower default rate for the entire study period (2007 to 2010) was significantly lower for the successful sites than for other responding sites, 3.7 percent compared to 7.9 percent, respectively. The majority of the respondents from these successful sites now earn more money since receiving the loan and/or have increased educational levels, which can also lead to increased earnings. An increase in earnings is likely to increase a borrower’s ability to successfully pay off the loan and avoid default. A decrease in dependence on public assistance, the third dependent variable of a successful site, can also signify an increase in earnings. In fact, the borrower survey reveals that successful borrowers have experienced an increase in average income of 50 percent between the time they applied for the loan and the time of the survey, as shown in Figure 2-23, compared to a decrease in income of about 22 percent for other borrowers over the same time period. Figure 2-23. Change in Average Income of Successful Participants and Other Participants

Average income after program

Successful Participants (n=110) $28,290

Other Participants (n=130) $18,549

$18,914

$23,770

Average income before program Source: 2011 Way to Work Borrower Survey

We analyzed and compared the activities of successful sites to those of the other sites to identify correlations and trends. Figure 2-24 shows the average percent of time that sites spent on specific activities during borrowers’ loan process and after borrowers purchased their cars. Successful sites spent more time, on average, helping borrowers apply for loans and providing and/or referring them to social services in comparison to the other sites. Less time was spent by successful sites on monitoring non-delinquent loans and counseling delinquent borrowers as compared to the other sites.

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31

Ways to Work 2011 Program Outcomes Study Figure 2-24. Average Percent of Time Spent on Each Activity

Source: 2011 Ways to Work Local Site Survey

In regard to the time spent on loan application activities, there was less of a variance between the successful sites and other sites. As shown in Figure 2-25, slightly more time on average was spent by successful sites on screening and orientation, helping develop a household budget, and working with the loan committee. Less time was spent by successful sites on processing approved loans than at the other sites.

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Ways to Work 2011 Program Outcomes Study Figure 2-25. Average Percent of Time Spent on Each Loan Application Activity 25% 21%

Percent of Time

15%

19%19%

19%

20% 15%15%

17% 16% 14% 13% 10%

10%

8% Successful sites Other sites

5% 0% Advertising Screening and and Recruitment Orientation

Helping Develop a Household Budget

Processing Working with Processing Loan Loan Approved Application Committee Loans Materials

Activity Source: 2011 Ways to Work Local Site Survey

All Ways to Work sites provide assistance on various issues to borrowers either directly or by referring the borrower to local agencies. These assistance services include access to medical services and affordable housing, life skills, family counseling, day care, job search, and financial literacy classes. This assistance can be of great benefit to producing successful participants. Job training and job search services, for example, can help borrowers obtain jobs that match their skill sets, and financial literacy training can give them the skills to budget their household finances, which can lead to greater savings and better financial management. Figure 2-26 shows the percentage of sites that provide direct assistance in each of these activities. The results are broken out by successful sites and other sites to identify trends between the two. A greater percentage of successful sites provide assistance in life skills, day care, and financial literacy directly. All successful sites provide financial literacy classes directly, and 75 percent of successful sites provide coaching on life skills directly, while 84 percent and 44 percent of other sites provided direct assistance in these services, respectively.

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33

Ways to Work 2011 Program Outcomes Study Figure 2-26. Percent of Sites Providing Services by Direct Assistance Successful Sites

Other Sites

Financial literacy classes

100%

84%

Life skills (goals, action steps)

75%

44%

Credit repair

25%

68%

Family counseling

25%

56%

Day care

25%

0%

Access to affordable housing

0%

32%

Job search

0%

28%

Job retention

0%

16%

Access to public benefits

0%

12%

Education (GED/college)

0%

8%

Job training

0%

8%

Access to medical services

0%

4%

Source: 2011 Ways to Work Local Site Survey

Figure 2-27 shows the percentage of sites that rely on referral to outside agencies for the provision of services or assistance in each of the areas. All of the successful sites refer borrowers to agencies to obtain assistance in job training, education, and job search, while 68 percent, 64 percent, and 52 percent of the other sites refer borrowers to agencies for this assistance, respectively. Figure 2-27. Percent of Sites Providing Services by Referral to Outside Agencies Successful Sites

Other Sites

Job training

100%

68%

Education (GED/college)

100%

64%

Job search

100%

52%

Access to public benefits

75%

84%

Access to medical services

75%

72%

Access to affordable housing

75%

60%

Credit repair

75%

28%

Family counseling

75%

28%

Day care

50%

60%

Job retention

50%

52%

Life skills (goals, action steps)

25%

36%

Financial literacy classes

0%

16%

Source: 2011 Ways to Work Local Site Survey, 2011 Way to Work Borrower Survey

Figure 2-28 shows the percentage of sites that do not offer any assistance in these areas. Two of the four successful sites indicate that they do not provide any job retention services, while one of the four successful sites does not provide access to medical services, affordable housing, and public benefits or day care. The proportion of other sites that do not offer these services are all lower, except for day care, where a greater proportion of successful sites provide this assistance either directly or by referring borrowers to an agency.

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34

Ways to Work 2011 Program Outcomes Study Figure 2-28. Percent of Sites Not Offering Services Successful Sites

Other Sites

Job retention

50%

28%

Day care

25%

36%

Access to medical services

25%

16%

Access to public benefits

25%

4%

Access to affordable housing

25%

4%

Education (GED/college)

0%

24%

Job training

0%

20%

Job search

0%

16%

Life skills (goals, action steps)

0%

16%

Family counseling

0%

12%

Credit repair

0%

4%

Financial literacy classes

0%

0%

Source: 2011 Ways to Work Local Site Survey, 2011 Way to Work Borrower Survey

The Ways to Work local sites all provide some sort of services related to purchasing and maintaining cars. A greater percentage of successful sites provide services related to helping the borrowers select cars to purchase, finding affordable car insurance, and identifying useful coupons and discounts than the other sites do (see Figure 2-29). Successful sites do not indicate that they offer car maintenance classes or help borrowers to service or repair the car.

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35

Ways to Work 2011 Program Outcomes Study Figure 2-29. Percent of Sites Offering Car Purchase and Maintenance Assistance 100% 100% 90% 80%

79%

75% 66%

70%

Percent of Sites

75% 66%

60% 50% 40%

34%

30%

Succesful sites Other sites

21%

20% 10% 0%

0%

0%

Helping to Select a Car to Purchase

Offering Car Maintenance Classes

Finding Helping to Identifying Affordable Car Service/Repair Useful Coupons Insurance the Car and Discounts

Service Source: 2011 Ways to Work Local Site Survey

2.6. Conclusions Overall, the Ways to Work program demonstrates the ability to help low-income working families improve their financial security. The process for assessing borrower motivation at intake, providing car maintenance counseling, and providing loan payment counseling and case management are the activities that help eligible borrowers connect with cars and loans. With access to reliable cars, borrowers can improve their employment circumstances, further their education, increase their income, reduce use of public assistance, and improve their quality of life and care for children. The loan and the financial education that are part of this program give borrowers the opportunity to strengthen their financial management skills, access traditional financial markets, and improve their credit score through timely repayment. In summary, this Program Outcomes Study finds: Borrowers are able to increase their wages after participating in the Ways to Work program. Of the 318 respondents who report having an income, 47 percent indicated increases in their income since taking out the loan. Thirty-five (35) percent experienced an increase of more than 10 percent. Ways to Work borrowers are advancing their educational careers after receiving their loans. About 26 percent of respondents indicated increases in their educational attainment since receiving the loan. The most common transition was going from a high school degree to completing some college courses. December 2011

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Ways to Work 2011 Program Outcomes Study

More Ways to Work borrowers joined the mainstream financial marketplace after receiving their loans. Of the 114 survey respondents who did not have a checking account at the time of the Ways to Work loan, 50 percent have opened a checking account since receiving the loan. Of the 194 respondents who did not have a savings account at the time of the Ways to Work loan, 35 percent have opened a savings account since receiving the loan. Twenty-four (24) percent of respondents indicated they have taken out another loan to support household needs since the Ways to Work loan. Borrowers are demonstrating their financial literacy though concrete actions: 61 percent of respondents have pulled their credit report in the past year, and 53 percent are saving for a rainy day/emergencies. Of the respondents who did not have checking accounts when they took out the Ways to Work loan, 50 percent have opened one since. Though the role of local financial institution partners has changed with the establishment of centralized lending, financial institutions are still involved with local sites. Financial institutions are still very engaged with loan committee activities and conducting more financial education for Ways to Work borrowers than in 2006, though they are supporting fewer sites financially now. Sites that produce a higher proportion of successful borrowers are more likely to focus their time on providing support and building relationships with borrowers before the car purchase happens and prioritize helping borrowers build life skills including setting goals and developing action plans.

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37

Credit Impact Study

Ways to Work 2011 Credit Impact Study

3. Credit Impact Study 3.1. Introduction A credit score is based on an individual’s payment history with previous and current lines of credit. Creditors report on a person’s payment record to the three credit bureaus—TransUnion, Experian, and Equifax—which then compile the information to ―grade‖ each customer on his or her personal credit history. The common model they each use is the VantageScore®, in which scores range from 501 to 990. To put credit scores in a context most people would understand, the credit bureaus have assigned letter grades of ―A‖ through ―F‖ to ranges of scores (see Figure 3-1). Figure 3-1. VantageScore Ranges Corresponding With Letter Grades and Lending Categories VantageScore Range

Grade

Lending Categories

901-990

A

Super Prime

801-900

B

Prime Plus

701-800

C

Prime

601-700

D

Non-Prime

501-600

F

High Risk

Source: Experian, www.experian.com

A low credit score begets higher cost on all types of financing, from large asset purchases to day-to-day credit card charges. It can increase the cost of getting a cell phone or insurance. A poor credit score can even threaten an individual’s ability to get an apartment or a job, blocking them from rebuilding their finances. Improving a credit score, even a handful of points if it’s enough to bring one to the next grade range of scores, allows access to lower rates and more favorable products. Improving a credit score involves remediating negative items and establishing a positive payment history on active accounts. Ways to Work helps its borrowers do both. It offers credit education to borrowers who want to learn how to challenge incorrect items on their credit report and pay off outstanding debts expeditiously. The Ways to Work loan itself provides an opportunity to establish a positive credit history; Ways to Work reports borrowers’ monthly payments to two of the three credit bureaus (TransUnion and Experian). While the FICO® score continues to be the best known and most commonly used credit scoring model, we used VantageScore for this evaluation. For the purposes of the Credit Impact Study, VantageScore provided a more cost-effective solution to obtain and comprehensively compare credit scores of the Ways to Work borrowers.

3.1.1. Study Overview The 2011 Credit Impact Study examines the evaluation questions: What is the impact of participation in Ways to Work on borrower credit scores? How does this impact compare to those of non-participants with similar baseline credit scores?

December 2011

38

Ways to Work 2011 Credit Impact Study

The study contributes to our knowledge by examining Ways to Work borrowers’ credit scores over various periods of time to look for trends among groups of borrowers. We used archived credit data provided by TransUnion, alongside administrative data provided by Ways to Work, to perform three sets of analysis: One- and two-year changes in credit score for Ways to Work borrowers Longitudinal score trends for earlier Ways to Work borrowers Differences in score outcomes between Ways to Work borrowers and a comparison group In all cases, we examined a subsection of the annual volume of borrowers, those with loan start dates of December to February of a given period (e.g., one group would be borrowers who received loans December 2001 through February 2002). This approach was initiated in the 2007 Ways to Work Credit Impact Study; there is no seasonality of the Ways to Work program that would cause this subsection of borrowers to be different from borrowers who received their loan other times throughout the year. Figure 3-2 outlines this approach, showing how borrowers were organized into cohorts and groups based on their program entry date. Figure 3-2. Credit Impact Study Cohort and Group Schedule Cohort 1 Group 1: Program Entry December 2001 to February 2002* Group 2: Program Entry December 2002 to February 2003* Group 3: Program Entry December 2003 to February 2004* Group 4: Program Entry December 2004 to February 2005* Group 5: Program Entry December 2005 to February 2006* Group 6: Program Entry December 2006 to February 2007** Group 7: Program Entry December 2007 to February 2008**

Cohort 2 Group 8: Program Entry December 2008 to February 2009*** Group 9: Program Entry December 2009 to February 2010*** Group 10: Program Entry December 2010 to February 2011****

* Examined in 2007, 2009 and 2011 Credit Impact Studies ** Examined in 2009 and 2011 Credit Impact Studies *** Examined in 2011 Credit Impact Study **** Not examined in 2011 Credit Impact Study; loan was too recent.

For each group of borrowers, we examined credit score outcome differences between defaulters (those who received Ways to Work loans but failed to pay them back in full) and non-defaulters (those who are actively paying off their loans or who have satisfactorily closed out their loans). The first part of the 2011 study involves exploratory analyses among Ways to Work approved borrowers, investigating their Year 1 and Year 2 mean differences in credit scores after the start date of the loan. The focus was on two cohorts of participants: Cohort 1 was borrowers who initiated loans between 2001 and early 2008 while Cohort 2 was borrowers who initiated loans more recently between late 2008 and early 2010. We chose to look at one- and two-year outcomes because of the timeframe of the Ways to Work loan and responsiveness of credit scoring—adding positive history and fixing derogatory history can improve one’s score in as little December 2011

39

Ways to Work 2011 Credit Impact Study

as six months, but continuing to make payments over the full term of the Ways to Work loan should have the strongest positive effect. Changes in credit score were assessed by looking at simple year-by-year mean differences, with application of univariate analysis of variance (ANOVA) models to assess the statistical significance of these differences. The second part of the 2011 credit impact study examines the overall long-term changes between initial and final data for earlier participants who initiated a loan between December 2001 and February 2002 (Group 1), December 2002 and February 2003 (Group 2), and December 2003 to February 2004 (Group 3). The average credit scores for all three groups by default status were compared over time. For these groups we also investigated whether the economic recession (defined as starting in late 2007/early 2008) had an impact on their later credit scores by comparing their scores to those who were accepted by Ways to Work during the same time frame but defaulted on their loans. Again, this part of the study looked at year-byyear mean differences and applied univariate ANOVA models to assess statistical significance. The third part of the 2011 credit impact study examines the differences between Ways to Work borrowers and a comparison group of non-Ways to Work borrowers at three different points in time of their credit history. The comparison group was drawn from TransUnion databases and represents a sample of individuals who, based on their credit status, geographic location, and background characteristics, likely would have been eligible to participate in the Ways to Work program but did not. These non-Ways to Work borrowers were then ―matched‖ to actual Ways to Work borrowers with similar characteristics in Group 7 (December 2007 to February 2008), Group 8 (December 2008 to February 2009), and Group 9 (December 2009 to February 2010), and changes in their credit scores over time were analyzed. More details about the methodology of selecting the comparison group are provided in the following sections as well as in Appendix A. In each part of the study, we use the VantageScore credit score as the measure of an individual’s credit status. Additionally, we analyze participants’ TransUnion Auto Model credit scores in the third part of the study. The number of participants assessed for each of the three analyses differed depending on the number of cases with complete initial and subsequent credit score data.

3.1.2. Changes in Approach From Earlier Credit Impact Studies Similar to the process used in the 2009 Credit Impact Study, in this study we examined the oneyear credit score changes for Ways to Work borrowers, including the two newly introduced groups of borrowers who initiated loans more recently between late 2008 and early 2010. Unlike the groupings used in the 2009 study, though, for this study the borrowers who were examined in the 2009 study were grouped into one cohort (Cohort 1), and the two new groups of borrowers who initiated loans during and after the completion of the 2009 Credit Impact Study formed a second cohort (Cohort 2). The 2011 Credit Impact Study makes other advances in its approach to examining the data to find meaningful outcomes among Ways to Work borrowers. First, in addition to the one-year credit score change examined in 2009, the 2011 study also investigates the two-year credit score changes for all groups of borrowers who initiated a loan between 2001 and 2010. Analyzing two-year changes in credit scores captures the strongest short-term effects during the full loan term of the typical Ways to Work borrower. Second, because we now have a longer range of data to work with, the 2011 Credit Impact Study examines the progression of the credit December 2011

40

Ways to Work 2011 Credit Impact Study

score history for three early groups of borrowers from the point at which they initiated their loans through 2011, up to nine years of data in some cases. Contrary to the 2009 study, we did not examine cumulative changes over time, but the focus was to understand the program’s longterm effects by examining separately three groups of earlier cohorts and their annual average changes. Finally, the major improvement of the 2011 Credit Impact Study is the introduction of three comparison group studies with samples of non-Ways to Work participants. Using the comparison groups brings a new perspective of examining the program’s effectiveness by comparing Ways to Work borrowers to a demographically comparable sample of non-Ways to Work borrowers with similar credit score history at the point of loan origination. This part of the study affirmed the positive findings of the short- and long-term exploratory analyses that credit score changes could be strongly associated to program involvement.

3.2. One- and Two-Year Changes in Credit Score Ways to Work reports that 1,097 borrowers initiated Ways to Work loans between December and the following February of the years 2001 through 2007 (Cohort 1) and that 260 borrowers initiated Ways to Work loans between December and the following February of the years 2008 through 2010 (Cohort 2). Background characteristics of the two groups of borrowers are presented in Figure 3-3. Ways to Work generally targets working poor families with challenged credit histories. Figure 3-3 presents administrative data from the borrowers’ applications that provides insight into the criteria used to select borrowers for Ways to Work loans. As the data show, a majority of Ways to Work borrowers are women, representing 78 percent of the borrowers from Cohort 1 and 85 percent of the borrowers from Cohort 2. Additionally, the data in Figure 3-3 reveal that a large percentage of these borrowers are African American, with 50 percent of Cohort 1 borrowers and 58 percent of Cohort 2 borrowers coming from this demographic group. Other common characteristics of Ways to Work borrowers are being single or unmarried (53 percent and 65 percent for Cohort 1 and 2 borrowers, respectively), renting instead of owning a home or having some other living situation (68 percent for Cohort 1 and 74 percent for Cohort 2 borrowers), and being between 33 and 34 years of age. In terms of financial status, on average, Cohort 1 borrowers had an annual gross income including public assistance of $12,000 while Cohort 2 participants had an average annual gross income including public assistance that was a little less than $18,000. The average approved loan amount for both cohorts was between $3,000 and $3,400, with a little more than 90 percent of the approved borrowers receiving a loan for purchasing a car.

December 2011

41

Ways to Work 2011 Credit Impact Study Figure 3-3. Demographics of Cohort 1 and Cohort 2 Participants Characteristics

Cohort 1

Cohort 2

N=1,097

%

N=260

%

Female

854

78%

221

85%

Male

104

9%

30

12%

Missing

139

13%

9

3%

African American

550

50%

150

58%

Asian / Pacific Islander

15

1%

1

0%

Hispanic / Latino

70

6%

20

8%

Native American

6

1%

5

2%

235

21%

65

25%

Gender

Ethnicity

White N/A / Other

41

3%

4

2%

Missing

180

16%

15

6%

Divorced / Separated

203

19%

40

15%

Living Together

16

1%

2

1%

Married

127

12%

31

12%

Single / Unmarried

581

53%

169

65%

Widowed

2

0%

3

1%

Other

9

1%

2

1%

159

14%

13

5%

Marital Status

Missing Housing Type Own

86

8%

17

7%

Renting

750

68%

193

74%

Living with Family / Friend

66

6%

23

9%

Shelter / Other

6

0%

2

1%

189

17%

25

10%

Car Purchase

997

91%

238

92%

Car Repairs

55

5%

7

3%

Housing / Rent

30

3%

0

0%

Other

14

1%

1

0%

Missing Loan Request Type

Missing

1

0%

14

5%

N=1,097

Mean

N=260

Mean

Average Loan Amount

859

$2,974.51

240

$3,366.25

Average Age at Loan Application Average Total Annual Gross Income Including Public Assistance at Loan Application

1034

34

229

33

859

$11,979.05

225

$17,766.68

Other

Source: GreenLight data

December 2011

42

Ways to Work 2011 Credit Impact Study

Figure 3-4 provides a snapshot of one-year mean score changes for Ways to Work borrowers by loan initiation period, both for defaulters and non-defaulters. Only borrowers from Cohorts 1 and 2 with complete initial and one-year after credit score data were analyzed. As shown in Figure 3-4, all groups of Cohort 1 non-defaulters showed positive changes, with the first three groups studied reporting significant changes in their credit scores. The 2002 to 2003 borrowers reported the largest gains (a 20.3-point gain) followed by 2001 to 2002 borrowers with a 17.4point gain, and finally by 2003 to 2004 borrowers with a 14.9-point gain. The majority of Cohort 1 defaulters, however, reported substantial reductions in their scores. Between 2002 and 2005, Cohort 1 borrowers who had not defaulted achieved increases in their credit scores from 5.8 to 20.3 points while the scores of borrowers who defaulted declined from 1.2 to 23 points. The gap between defaulters and non-defaulters was even more pronounced among Cohort 2 borrowers. Overall credit score data show that Cohort 2 defaulters did not have similar levels of success compared to the Cohort 2 non-defaulters in increasing their credit scores from loan origination to a year after. Figure 3-4. One-Year Mean Changes in VantageScore Credit Scores Defaulters

Non-Defaulters

Cohort 1

n=

Initial Average Score

Mean Change

n=

Initial Average Score

Mean Change

Group 1 (Dec01-Feb02) Group 2 (Dec02-Feb03) Group 3 (Dec03-Feb04) Group 4 (Dec04-Feb05) Group 5 (Dec05-Feb06) Group 6 (Dec06-Feb07) Group 7 (Dec07-Feb08) Total

19 27 11 23 4 31 11 126

559 542 555 543 n/a 564 548 551

-23.1*** -1.2 1.5 -17.6* n/a -26.4** -20.6* -14.6**

57 71 103 145 234 160 160 930

559 567 569 580 574 577 576 574

17.4** 20.3*** 14.9*** 5.8 3.9 5.0 6.2 7.3**

1 15 16

n/a 590 593

n/a -33.9** -31.1**

174 70 244

565 565 565

6.8* 6.1 6.6**

Cohort 2 Group 8 (Dec08-Feb09) Group 9 (Dec09-Feb10) Total

Significance: *p