Is There a Connection Between College and Foreclosure?

A home can reach foreclosure due to a number of reasons, but they all have one thing in common – the owners have stopped being able to pay the agreed upon amount.

So, what does this have to do about college? It’s all about the money, money, money. Economists believe that during the Great Recession, homeowners with college students were much more likely to experience foreclosure, and that belief still rings true today.

In a report written by Jacob Faber of New York University and Peter Rich of Cornell University, it was stated that, “college expenditures supported by financial optimism—and a reliance on the increase in house prices—could have made households vulnerable during the Great Recession, as unemployment, underemployment (i.e., involuntary part-time work), a credit freeze, and reduced incomes made it harder to make mortgage payments.”

The study goes on to read that the same can be said for current foreclosures, as those undesirable trends are remaining the same. College costs are currently $100,000+ for a full, four-year tuition, and while many parents save up for college costs for their children, it still remains difficult to keep up with the rising costs each year.

Faber and Rich also claim that, “this 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.”

So, if you have clients with college-aged children who are either looking for a new home, or are currently in possession of one, it may be a good idea to let them know about this trend. During the Great Recession, parents covered, on average, 45% of their children’s undergraduate schooling, and that number is growing every year as prices become more expensive. The price of college is constantly increasing, and the sad reality is that this rising cost has a strong correlation with foreclosures – don’t let this happen to your clients!