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Working Paper Series

The Impact of Parental Wealth on College Enrollment & Degree Attainment: Evidence from the Housing

Authors

  • Rucker Johnson, Goldman School of Public Policy, University of California, Berkeley

History

  • Goldman School of Public Policy Working Paper (January 2011)

Abstract

A long-standing policy goal of aid is to narrow, if not close, the parental income gap in
children’s subsequent educational attainment. Recent research indicates that credit constraints
have played a larger role in college enrollment and completion rates over the past 15-20 years
(Lochner and Monge-Naranjo, 2011; Lovenheim, 2011). Prior evidence found greater credit
constraints in the US than Canada (Belley et al., 2009). Housing wealth has become an
increasingly important component of the college enrollment decision over the past 15 years
(Bound et al., 2010). The parental wealth depletion following the Great Recession and housing
market collapse has potentially important implications for college prospects of our youth. A
recent survey of young adults found that 20% aged 18-29 have left or delayed college
(Greenberg and Keating 2009). A survey conducted in Colorado found that 1/4 of parents with
children in 2-year colleges planned on sending their kids to 4-year institutions before the
recession (CollegeInvest 2009).

This study provides new evidence on the impact of parental wealth on educational attainment. In
order to address the endogeneity of parental wealth, the empirical strategy analyzes parental
housing wealth changes induced by local housing booms of the late 1990s and early 2000s, and
the subsequent housing bust of the 2007-2009 period. Using geocoded data from the Panel
Study of Income Dynamics (1968-2009) linked to MSA housing price data from the Federal
Housing Finance Agency, I examine how changes in parental housing equity in the four years
prior to their child being college-age affect the likelihood that the child attends college and
where they attend (2-year vs. 4-year; in-state vs out-of-state; college quality). This provides a
test of the role of parental wealth (and potential credit constraints) in influencing post-secondary
decisions, including if, when, and where individuals attend and complete college.

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