Send­ing your kids to col­lege in­creases the chance of a home fore­clo­sure»

The Denver Post - - BUSINESS - By An­drew Van Dam

The fi­nan­cial dis­tress caused by col­lege tu­ition wors­ened the fore­clo­sure cri­sis at the heart of the Great Re­ces­sion.

New re­search in the jour­nal De­mog­ra­phy shows that if you wanted to know where the wave of fore­clo­sures would hit next from 2006 to 2011, you could start by look­ing for places which had just sent an un­usual num­ber of stu­dents to col­lege.

So­ci­ol­o­gists Ja­cob Faber of New York Univer­sity and Peter Rich of Cor­nell looked at an­nual changes in col­lege at­ten­dance and home fore­clo­sures for 305 broad Amer­i­can metro ar­eas, which cover about 85 per­cent of the pop­u­la­tion.

If col­lege at­ten­dance rose in a cer­tain area, a year later, the rate of fore­clo­sures did too. The clear im­pli­ca­tion, Faber said, was “that the strain of pay­ing for col­lege in­creased fore­clo­sure risk.” Na­tion­wide, they found a 1 per­cent in­crease in col­lege at­ten­dance could be ex­pected to lead to be­tween 11,200 and 27,400 ad­di­tional fore­clo­sures.

Fore­clo­sure risk jumped most when stu­dents came from mid­dle-in­come house­holds, but sur­pris­ingly, even an in­crease in col­lege at­ten­dance among top-earn­ing house­holds would lead to el­e­vated fore­clo­sures.

They found the same re­la­tion­ship in other datasets, in­clud­ing those which fol­lowed house­holds over time. For ex­am­ple, the Panel Study of In­come Dy­nam­ics shows that — all else be­ing equal — fore­clo­sure risk dou­bles af­ter a fam­ily sends a child to col­lege.

The re­la­tion­ship also ex­isted in blunt, statewide data. In states where col­lege at­ten­dance climbed, fore­clo­sures fol­lowed. Ev­ery­where they looked, Faber said, they found “pretty strong ev­i­dence that there is a causal re­la­tion­ship.”

To iso­late the ef­fect of pay­ing for col­lege, Faber and Rich ad­justed for other fac­tors that have been shown to in­crease fore­clo­sure risk, such as un­em­ploy­ment, mort­gage debt, home prices and the over­all col­lege-age pop­u­la­tion.

Pre­vi­ous re­search has shown that hav­ing kids at all boosts your fore­clo­sure risk sig­nif­i­cantly. It cost an av­er­age of $233,610 to raise a child through age 18, ac­cord­ing to 2015 fig­ures from the Agri­cul­ture Depart­ment.

“In ad­di­tion to kids be­ing gen­er­ally ex­pen­sive, hav­ing a kid in col­lege is par­tic­u­larly fi­nan­cially stress­ful for house­holds,” Faber said. “And that fi­nan­cial stress has led to in­creased fore­clo­sure risk.”

The non­profit Col­lege Board found the av­er­age cost of a four-year ed­u­ca­tion in­clud­ing room and board has more than dou­bled over the past two decades — even af­ter ac­count­ing for in­fla­tion. When you con­sider only tu­ition and fees, the cost of a pub­lic ed­u­ca­tion has jumped three­fold over that time.

Some of that ris­ing tu­ition is cov­ered by fi­nan­cial aid — but much of that comes in the form of loans, which only adds to par­ents’ fi­nan­cial bur­den.

The in­creased fore­clo­sure risk across all in­come groups shows “the gap be­tween the to­tal cost and the fi­nan­cial aid pro­vided may still be too large for many fam­i­lies across the in­come dis­tri­bu­tion to bear,” Faber and Rich write.

“Both of these in­vest­ments — in­vest­ing in col­lege and in­vest­ing in home eq­uity — are what we tell ev­ery­one are the two most im­por­tant tools for achiev­ing the Amer­i­can dream,” Faber said.

In early 2018, Amer­i­cans owed a grand to­tal of $1.4 tril­lion in stu­dent loans, ac­cord­ing to the New York Fed. It wasn’t al­ways that way, but in 2009 and 2010, stu­dent loan debt leapfrogged credit cards and auto loans to be­come U.S. con­sumers’ largest cat­e­gory of non-hous­ing debt.

Since the Great Re­ces­sion be­gan, Amer­i­cans’ over­all debt (in­clud­ing mort­gages) has grown by about $839 bil­lion. Stu­dent-loan debt makes up a frac­tion of the over­all, yet grew by $860 bil­lion over that time. To put it another way, con­sumer debt would still be be­low 2007 lev­els if it weren’t for stu­dent loans, even be­fore ad­just­ing for in­fla­tion.

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