Family Property Values Predict Quality Of Colleges Attended

How much does the value of your parents’ home predict where you go to college? More than one might think, economist Michael Lovenheim argues in a new working paper from the National Bureau of Economics.

Until recently, mainstream assumptions gave a lot of credence to the notion that students need a lifetime of resources to be prepared for college: high expectations from family and teachers, extra-curricular activities, engaging dinner conversations, you know the drill. It turns out that while those issues may play a part in the very big picture, a family’s short-term liquid assets have a lot more influence on college choices than economists once believed.

Specifically, economist Michael Lovenheim has found that the value of a student’s family home during her high school years directly correlates to the quality of the institution she attends in the following years.

In a poor housing market, Lovenheim says, “these families think: ‘I can’t afford to go here, so we won’t apply.’” But during the housing boom, students from identical backgrounds applied to, were accepted, and attended higher-tier schools.  “For every $10,000 increase in a family’s housing wealth in the four years prior to a kid turning 18, it increases the likelihood of going to a flagship public university by 2 percent, and it decreases the likelihood of attending a community college by 1.6 percent,” Lovenheim explains. The same effect was found between students choosing between no post- secondary schooling and community college.

This information is important in New Hampshire for a few reasons.  As you can see in the graph below, the median purchase price of primary homes in New Hampshire fell 17.2 percent in the last six years, with Coos and Merrimack counties seeing a dip above 20 percent.  While more homes may be selling, the purchase price of those homes has not increased in the last two years.  As the New Hampshire Housing Finance Authority adopts policies like this one to encourage homeownership, they are also investing in the educational future of the states’ students.  But if banks continue to make it difficult for families to leverage their homes to pay for college, students may continue to choose lower tier schools than they are qualified to attend.

Meanwhile, Lovenheim’s research also suggests that traditional scholarships and financial aid are coming to students too late.  By the time students find out about financial aid and scholarship awards, they’ve already ruled out better and more expensive schools.  If folks in New Hampshire really want to encourage young people to get a good education and stay in the state, Lovenheim says, we might look to states like Florida and Georgia, where the state university guarantees a free-ride to all in-state students whose GPA is above a certain threshold.

Read more about Lovenheim’s research.


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