RENEE MONTAGNE, HOST:
We're going to hear now about some surprising consequences of the weak housing market in this country. It turns out that the value - even on a paper - of a home can affect the college choices that a family makes.
NPR science correspondent Shankar Vedantam regularly joins us to discuss social science research. He's here this morning to talk about those new findings. And good morning.
SHANKAR VEDANTAM, BYLINE: Hi, Renee.
MONTAGNE: This new research, describe it for us.
VEDANTAM: Well, we've known for a long time, Renee, that a bad economy affects all kinds of things. So when young people graduate from college and they enter a weak economy, it affects their wages over the course of their entire lifetimes.
Now, this one economist I spoke with - his name is Michael Lovenheim; he's at Cornell University. He decided to look at one, specific part of the economy: the housing market. And he finds that the effects of the housing market influence where students are going to college. Here he is.
MICHAEL LOVENHEIM: What we see is that students who obtain more housing wealth when they were in high school were more likely to go to flagship schools; were less likely to go to community colleges; were more likely to graduate. These educational outcomes, and the earnings that you get from going to higher-quality schools, have effects on people's lives.
MONTAGNE: Now, how much are students affected by housing prices? I mean, is it just a little bit, or is it significant?
VEDANTAM: Well, Lovenheim told me it's actually quite a bit, and this is especially true for families that are making less than $75,000 a year. And so when you look at the typical increase, and the decrease, in housing values for those kinds of families across the United States, it seems to affect the college choice by as much as 25 to 30 percent. So in other words, in a bad housing market, students might be 30 percent less likely to go to the flagship schools, rather than a community college.
MONTAGNE: Why would that be? Because if a family is living in a home and not needing to sell it, why would the lower value of a house have such a large effect on where their children might go to college?
VEDANTAM: So, I think there are multiple possible explanations for that, Renee. The first is the rational, straightforward explanation - which is that families are borrowing against the value of their homes in order to send their kids to college. And so in a weak housing market, they have less equity in the house, and they may even have less liquidity that can come out of the house. And so it limits their choices in where kids can go to college.
But there's another factor, and the other factor is probably psychological. What Lovenheim thinks is happening, is that many students are internalizing how poor their parents feel in a bad housing market, and this is limiting their choices about where to go, because it's not the case that students are applying to the flagship schools, getting in, and then finding out that they can't get financial aid, or they can't afford it. They're simply not applying to those schools at all.
MONTAGNE: Does this not apply so much to the 1 percent - or at least, the higher-income families?
VEDANTAM: Well, I certainly think that people who are wealthy are probably insulated from this quite a bit. It also turns out that there is a legislative reason that we find ourselves in the boat that we do. Back in 1992, Congress passed a law which said the value of your home can't be taken into account when you're applying for financial aid in college. And this was wonderful during the boom years, because the value of your home could go up, and you could still qualify for financial aid in college. But now, during a recession when housing values have dropped, it turns out you can't go to a school and say look, the value of my home has dropped by 25 percent. Could you please give me some financial aid?
MONTAGNE: But what about the idea that, you know, if you can overcome the psychological barrier, the feeling of being poor, that applying to a college is the same as it had been before the housing crash?
VEDANTAM: I think this is actually what Lovenheim is saying, Renee. He is saying that students should still apply to the flagship schools and see if they can qualify for financial aid, see if they can take out a loan. I mean, he's an economist. Part of the point that he's making is that the benefits of college, and the benefits of a good college, play out in your life over a matter of decades. And being 10,000 or $20,000 extra in debt in a student loan, you know, is more than compensated for in the long-term returns of college.
MONTAGNE: That's Shankar Vedantam, who joins us to talk about interesting social science research, on a regular basis. You can find him on Twitter: @HiddenBrain. And while you're at, you can follow this program: @MORNINGEDITION. Transcript provided by NPR, Copyright NPR.