Lower Housing Prices Could Lead To Lower College Attendance: Study

09/16/2011 02:55 pm ET | Updated Nov 16, 2011
  • Bonnie Kavoussi Master's student in economics, the University of Michigan

The housing bubble burst may puncture the dreams of many students hoping to attend college.

As housing prices rose from the late 1990s through 2006, many parents used their new-found wealth to send their children to college, according to a recent study by Cornell University economist Michael Lovenheim. Now, with housing prices back at 2003 levels, parents may not have enough money to pay tuition, which could force young people from middle- and low-income families to skip the college experience altogether, the report finds.

Lovenheim's findings indicate that college attendance rose nearly 8 percent between 2001 and 2005 as home prices skyrocketed, and the relationship between rising house prices on middle- and low-income families' children's college attendance was particularly strong. For families earning less than $70,000 per year, a child became 13.8 percent more likely to attend college for every $10,000 increase in the value of the family's home.

That the cost of college continues to balloon, especially at private universities, doesn't help matters either.

With housing prices continuing to fall more students may also be forced to take out student loans, putting them in danger of defaulting. The number of students defaulting with in two years of repayment rose to 8.8 percent in 2009, up from 4.5 percent in 2003, according to the Department of Education.

Although Lovenheim's study didn't pinpoint exactly how much college attendance may drop because of sunken house prices, Lovenheim said he expects fewer students to go to college as a result, especially among middle-class families.

Since Americans now are $7.7 trillion less wealthy than they were before the onset of the recession, many young people may decide not to take a chance on borrowing their way to college. Housing prices have fallen about 32 percent since their peak in 2006, according to the S&P/Case-Shiller Home Price Indices. And in total, Americans have lost more than $7 trillion in home equity since the peak of the housing boom in 2006, according to the Federal Reserve Bank of New York.

The housing crash had an especially devastating impact on minority families, indicating that if Lovenheim's findings hold true, black and Hispanic students may be attending college in fewer numbers.
Hispanic households lost two-thirds of their wealth between 2005 and 2009 when the housing bubble burst, and black households lost more than half of their wealth, according to a Pew Research Center study cited by The Huffington Post. White households lost 16 percent of their wealth on average.

Even if falling home values don't keep low- and middle-income students out of college all together, they may be forced to choose community college over other universities. Lovenheim, the study's author, found in a previous paper that every $10,000 increase in home prices, students were 2.3 percent more likely to attend a public flagship university and 1.6 percent less likely to attend a community college. The relationship between home values and university attendence was strongest among families earning less than $75,000 per year.