Association for Public Policy Analysis & Management

From 2007 through 2011, the United States experienced an unprecedented wave of foreclosures. A broad consensus points to the preceding housing boom, fueled by risky subprime credit and the subsequent collapse of the housing market, as the primary causes of this “Great Recession.” We hypothesize that rising costs of college and increased enrollment may have also led to financial burdens for households with college-age children. In a period of financial insecurity, this may have placed many families at risk of mortgage default. We find evidence of college related financial risk for middle- and high-income families: when the likelihood of college attendance among the 50th and 90th income percentiles increased within a metropolitan commuting area, that area also experienced an increase in the rate of foreclosures. Some households were financially overextended by college costs, putting them at greater risk of foreclosure as the economy contracted.

We developed random effects statistical models that regress foreclosure rates over time from 2006-12 on commuting zone variation in levels of college attendance, unemployment, tuition, subprime lending and housing finance (measured in 2006) as well as time-varying changes in these variables from compared to the 2006 baseline level. This modeling structure allows us to test whether changing foreclosure rates during the Great Recession are explained by variation between commuting zones and within commuting zones over time. We find not only that subprime lending explains a substantial portion of foreclosures (as expected by prior research), but also that changes in college attendance rates among middle- and high-income families also predict additional variation in the rates of foreclosure. These findings are robust to a range of control variables.