The Housing Crisis and the Rise in Student Loans
We study if the changes in U.S. house prices over the 2000s aﬀected growth in student loans. Using household-level panel survey data, we ﬁnd that as home prices fall households depend less on home equity extraction to ﬁnance 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 ﬁnance 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 eﬀects of this leverage on students. Our results show that the decline in house prices reduced households’ ability to ﬁnance 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 eﬀects on liquidity-constrained and less-educated households.