Washington , D.C. -
12/16/2011 - The housing boom of 2001-2005, and the bust that followed, provided a unique opportunity to study the impact of housing wealth on college decisions. Housing Wealth and Higher Education: Building a Foundation for Economic Mobility finds that low- and middle-income students whose families experienced increases in housing wealth just before reaching college age were more likely to attend college, more likely to attend higher-quality universities, and more likely to graduate.
Study author Michael Lovenheim, assistant professor at Cornell University, developed an economic model to isolate how gains and losses of home equity affected college choices, independent of student achievement and other factors that affect postsecondary decisions. He found that for every $10,000 in home equity gains, the likelihood of enrolling in college increased by six percent among families making less than $70,000 a year.
“The model lets us conclude that the wealth generated by rising home values during the housing boom led to a 24 percent increase in college enrollment among low- and middle-income families,” Lovenheim said. “These students also were more likely to attend four-year public flagship colleges.”
The recent housing bust and resulting loss of housing wealth negatively impacted the postsecondary decisions of low- and middle-income students. Absent other changes in the economy that affect college decisions, the report suggests that the decrease in housing wealth alone would have reduced college enrollment for students from these families by 30 percent and decreased graduation rates from four-year colleges by 12 percent.
“Higher education is one of the key factors that drive upward mobility in the United States,” said Erin Currier, project manager of the Pew Economic Mobility Project. “This report suggests that higher education decisions made by low- and middle-income students are highly sensitive to fluctuations in housing wealth.”
Methodology: The data used to analyze college enrollment come from the Panel Study of Income Dynamics (PSID) and are confined to adults who were 18 or 19 years old between 2001 and 2005. The analysis predicts housing wealth at the time of college decision-making to assess the relationship between housing wealth and college-going. This analysis also is used to predict the housing bust’s effect on future college enrollment. The data used to analyze college quality and graduation rates come from the 1997 National Longitudinal Survey of Youth (NLSY97), and are confined to youth who lived in a metropolitan area in 1997, graduated from high school and went to college within two years. An estimate of the four-year change in home value when each respondent is in high school is used to measure the change in housing wealth experienced.
For the complete report and for more information, please visit www.economicmobility.org.