According to a Cornell University study, the plummeting value of homes is having an adverse affect on the number of students that are heading off to college. The head of the study, economist Michael Lovenheim, found that the steady decline of housing prices is reducing the overall wealth of parents, which is also prohibiting parents from paying for the college education of their children.

Even those students that are still attending college in the face of a housing bust and with less money to work with, are having to make a change to their original educational plans.

When housing values were up, parents were accessing the equity they had built in their home to access the cash they needed to pay for a college education for their children. Accessing the equity in the home was a fast and easy way for parents to obtain the cash they needed to pay for the college education, using a low interest rate equity line or loan, and a tax-deductible way to send their child off to earn a college degree.

Housing Prices Rise, Enrollment Increases

According to the study, from the 1990s to 2003, the prices of houses steadily increased on an annual basis. The increasing values of homes provided parents with access to the equity they had built in the home to use as the means to pay the tuition, room and board, and book fees to send their children off to college. This access to cash from the increased value of the home alleviated the need for taking out student loans, depleting cash savings or having to cash out retirement accounts—and taking tax penalties—for funding college educations.

The proof is in the numbers.

  • Between 2001 and 2005, when home prices skyrocketed, college attendance rose by 8 percent
  • For every $10,000 more that the home value increased, there was a 13.8 percent higher chance that the child would attend college
  • According to a University of Michigan study, 64 percent of the children of homeowners were likely to go to college, while only 33 percent of renters were likely to go to college

Lower Housing Prices, Higher Student Loan Default Rates

The study also reveals that as housing prices fell, not only did it decrease the attendance numbers at colleges and universities around the country, but those who attended college were forced to turn to alternative payment methods, such as taking out student loans.

According to the U.S. Department of Education, 4.5 percent of borrowers were in default on their student loans in 2003. In 2009, the number of borrowers in default on their student loans has increased to 8.8 percent.

Alternative Educational Choices

The study reveals that Americans are $7 trillion less wealthy since the housing boom went into a housing bust, which is a 16 percent loss in household wealth. This equates to a reduction in housing values of approximately 32 percent since 2006, as far as the S&P/Case-Shiller Home Price Indices reports. According to Lovenheim, this may not deter students from heading off to college, but it may throw a wrench in their original plans. Those students who intended on going straight to a four-year university program may have to start at a two-year program at a community college instead.

In a previous study conducted by Lovenheim, for every $10,000 in value that the home fell, 2.3 percent of students were less likely to attend a major university and 1.6 percent were less likely to attend a community college.

Those most affected by the decrease in housing values and the change in college attendance are low- to middle-income families. The average household income is $75,000, and even of these households, minority households, such as African-American and Hispanic households are the most affected.

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