Borrowers with college kids more likely to lose their homes

by Steve Randall08 Aug 2018

The cost of putting children through college can literally cost families their home according to a new study.

Looking at the Great Recession of the 2000s, the study by Jacob Faber of New York University and Peter Rich of Cornell University found that banks often foreclosed on the homes of families who were supporting children’s further education.

Despite programs to make college more accessible for many people, the study found that between 2005 and 2011 tuition fees nearly doubled, while the share of Americans aged 18-24 attending college was 39.4%.

The study, published in Springer's journal Demography, analyzed data about foreclosures and federal taxes in 305 US commuting zones, and took note of unemployment rates, refinance mortgage debt, home prices, and the number of 19-year-olds living in these areas.

They found that higher rates of families with children starting college correlated with a higher rate of foreclosures in the following year.

"This may help explain why some families with children were more likely to experience foreclosure during this period than childless households - as shown in previous studies. Our findings do not suggest that households' decisions to send children to college were as consequential as housing or labor market dynamics in shaping the Great Recession, but it is important to understand all contributing factors, especially because the penalties of foreclosure can be substantial and lasting," says Faber.

Income band was not the issue
The findings revealed that the increased likelihood of foreclosure was not dependent on income as the link persisted across income distribution.

"Our study warrants policy attention not only to risky home lending, but also to other determinants of financial hazard--such as the cost of college attendance--that can overextend families and render us all vulnerable to future economic crises," Rich said.

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