The Housing Crisis and the Rise in Student Loans

We study if the changes in U.S. house prices over the 2000s a?ected growth in student loans. Using household-level panel survey data, we ?nd that as home prices fall households depend less on home equity extraction to ?nance college enrollment and depend more on student loans. We estimate that for every lost dollar of home equity credit that would have been used to ?nance college enrollment, households increase student loan debt by forty to sixty cents. This substitution appears to be driven primarily by households with low levels of liquid assets. We extend our analysis with credit bureau data to trace longer-run e?ects of this leverage on students. Our results show that the decline in house prices reduced households’ ability to ?nance college enrollment with home equity credit, but that constrained households mostly responded by continuing to enroll in college and relying on student loans. Our estimates suggests the 30% fall in house prices from the 2006 peak resulted in the average college student borrowing an additional $1,300 in student loans, with some evidence of larger e?ects on liquidity-constrained and less-educated households.