<p>I just heard a financial reporter on CNN discuss the theory that the housing bubble contributed to the rapid increase in college costs. In a nutshell, many parents were willing and able to pay for their kids very expensive educations by taking out the greatly increased equity in their houses through refinancing. Of course, that is not an option for nearly as many families now that the bubble has burst.</p>
<p>I know several families that used their home equity to pay for college. We have some friends who would like to move closer to the husband's job but can't because they took too much money out at the price peak and now have very little equity (some of the money was for college, but not all).</p>
<p>I can't ever remember hearing about my friends' parents using home equity to cover college expenses back when I was going to school 30-some years ago. Back then, most families had the goal of paying off their mortgage before retirement and using their home as a funding source for college wasn't even considered.</p>
<p>I have to say that my husband and I have the same attitude as our parents' generation. </p>
<p>I'm not suggesting that the housing bubble accounts for all the increase in college costs, but I think this is an idea worth considering.</p>
<p>I’ve known one family 25 years ago that took out equity from a home to pay for 2 pricey colleges (back when neither housing prices nor pricey colleges were as pricey). I’ve known one person who went to law school later in life and paid for it out of home equity. </p>
<p>But that doesn’t seem to be the way college is financed much with the people in my crowd. </p>
<p>One question–are PLUS loans dischargable in bankruptcy for parents?</p>
<p>When we considered all available choices, we used our really low rate home equity credit line for DD. It made more sense to let our portfolio recover over the last 2 years before tapping into it. It has paid off handsomely since the portfolio recovered by far more than what we paid on the interest rate on the home equity line. Now she is done and we are switching the payments and will pay if off quickly. </p>
<p>We never got anywhere near the available equity in our home either. We opened the equity line when money was easy and cheap and they gave us a huge limit. We used it enough to keep it open so it was there when we wanted to use it. .</p>
<p>I was careful to say in my original post that I thought this could be one factor in the college cost run up, not that it is the whole explanation.</p>
<p>This is definitely part of the reason why tuition costs have increased so much. But closing the credit spigot would probably not affect the tuition costs at the top schools, where many people seem willing to pay almost any price to send their kids.</p>
<p>I remember that I thought that $40K a year for school was SURELY the price break point for college tuition, but even costs above $50K a year aren’t unusual.</p>
<p>Some business schools cost $100K a year. Thank goodness they are only 2 years in length.</p>
You almost certainly do - it’s just that you (and they) probably don’t think of it in those terms.</p>
<p>During the housing bubble, many families were extracting cash from their rising home values, and using it to fund a larger lifestyle then they could afford. Even if folks compartmentalize their assets in their minds, it’s still an artificial accounting fiction. Money is fungible.</p>
<p>Of course, a lot of folks took out HELOCs to pay for college. But, also, anyone who has taken out a PLUS knows how easy it is to get one of those.</p>
<p>We really haven’t read a lot of stories about how parents with PLUS loans are defaulting like crazy–most of the stories in the papers have been about students with $100K+ in loans having trouble paying. Anybody with any anecdotes to share about parents?</p>
<p>Hmm, should I take out a tax-deductible HELOC at 5% … or a non-deductible loan at 8%? Boy, that’s a hard one. Doesn’t anyone have an easy question tonight?</p>
<p>If there’s a financial faux pas here, it’s need-based FA policies that provide NO AID to many middle-class families.</p>
<p>Reasons for rising tuition and the correlation with the housing bubble need to be split into public and private schools.</p>
<p>First, many private (public too, I’m sure) schools took significant hits to their endowments after the housing/financial collapse. They raise tuition to make up for market losses.</p>
<p>Second, public schools have had decreases in funding from states due to decreases in revenues at the state level. Decreases in revenues can be caused my many things, but the recession caused by the housing bubble/financial collapse is at the top of the list. Even though I’m fairly sure property taxes don’t directly fund many colleges, decreases in home values will decrease property tax revenue, decreasing school funding.</p>
<p>I’m quite sure that lack of home equity available to parents to pay for their child’s college tuition is not a significant influence for the rise of tuition costs. It’s actually counter intuitive to basic supply and demand. Restriction of easy credit causes prices to go down, not up. Schools should have fewer families able to afford tuition, thereby cutting prices to attract students. That’s not the case at all right now.</p>
<p>And schools can keep their current price on the books and “cut prices” by giving “merit scholarships.”</p>
<p>The one reason for not using a HELOC for college expenses is that you put your house at risk if you don’t make your payments. You don’t pay on your PLUS loan? You’ll be hounded, but haven’t heard of anyone losing their house over it.</p>