May Mortgage Update and housing’s effect on college choice

Last month (April):

Balance: $81,065.97
Years left: 6.5
P =$887.38, I = $327.03, Escrow = 621.66

This month (May):

Balance: $79,508.51
Years left: 6.333
P =$893.52, I = $320.89, Escrow = 613.58

One month’s prepayment savings:  $2.66

Our escrow dropped.  Yay.  (Though boo that’s because our property value continues to drop!) Also: Note we’re below 80K!

It turns out that your housing wealth affects your college choice.  A recent paper by Michael Lovenheim and Lockwood Reynolds finds that a 10K increase in housing wealth in the 4 years before a child goes to college increases the likelihood that the child attends a public flagship by 2 percent compared to less expensive public schools.

They found no relationship between housing wealth and where a student was accepted, and they suggest that the relationship comes between housing wealth and where students apply.

This effect of housing wealth on college choice was strongest for lower income families (under 75K, which isn’t actually low income, but it is generally eligible for financial aid at colleges).  For this group, a 10K increase in housing increased the probability of attending a flagship by 8.3 percent and decreased the probability of going to a community college by 3.8 percent.

They also found for lower income families that an increase in housing wealth decreased the amount that students worked outside of school and increased the probability of earning a BA rather than dropping out by 1.8 percent.

They found no effect of housing wealth on families earning more than 125K/year.

Do you think increases in your housing wealth would change your decisions about where you or your children could attend school?

11 Responses to “May Mortgage Update and housing’s effect on college choice”

  1. Leigh Says:

    So I noticed that your amortization is now down to < 7 years. That means that if you refinanced to a 7/1 ARM and kept making your current payment, it would be paid off in about 6 years. For fun, I popped your mortgage balance and my zip code into the mortgage rate quote calculator for Schwab Bank and it looks like you could probably get a rate around 3.000% or 3.125% with no closing costs. That'd drop your required monthly payment down to about $340 or so. I then plugged the numbers into the GRS Mortgage Calculator and it says with your current payment (ignoring the pre-payments you're making), you would pay $12,700 in interest over the remaining 76 years of the loan. But with 3.125% and making the same payment, you would only pay $7,700 in interest over 72 payments.

    Some food for thought. I only thought of the 7/1 ARM as a reasonable option for refinancing with your risk level since your amortization is now < 7 years.

    • nicoleandmaggie Says:

      I haven’t been able to get a refinance scenario in which the closing costs are worth it (given our chances of moving in 2 years). We don’t actually have all that much interest left to pay.

      Given that we have more money in our taxable e-trade account than we owe on the mortgage, we could do a shorter amortization without much risk.

      Our mortgage lender said no on a no-cost refinance because we had done one too recently. The cost we got for doing the refinance was 4K and did not seem worth it.

      • nicoleandmaggie Says:

        So if we stop prepayment, we will pay an additional $11,843.84 in interest. If we kept up our current rate of prepayment, the amount will be $7,024.63. That’s what we would save over the course of the loan if we paid off the loan right now. (At the prepayment rate I’m planning on going forward, it would be $10,083.30.)

        The two scenarios that would make refinancing a bad idea are: 1. we move in the next couple years or 2. DH makes a lot of money in the next couple years and we put some towards the house (because it’s easy).

  2. Debbie M Says:

    Hmm, my parents actually bought their first house about five years before I graduated from high school, so it’s actually quite possible they had an increase in housing wealth. And I went to a fancy-schmancy private college and graduated in four years.

    My freshman year in college, they moved to another city and rented, so their housing wealth decreased, which I’m sure explains why my little brother not only did not go to a good college but dropped out of high school. I should tell him that it’s not really his fault–it’s all because Dad’s business partner went bankrupt, causing the business to go bankrupt, causing my parents to want to move to another city where a bunch of our relatives had just moved.

    By the time my little sister got to high school, they were homeowners again, but she ended up a community college dropout.

    Well, the differences found in the study may have been real, but they are quite small. In my family, the differences can be adequately explained by personality differences. I got to go to a good school because there was good financial aid in those days. And even though I had to leave my good college my junior year when Dad told me that he would not be able to afford to pay for his portion and, not only that, had never paid for his portion of my sophomore year, I went to a local state school for one year, using the loan to pay off my sophomore year, a grant to pay for my junior year, and jobs to pay for my and my parents’ portion of my senior year so I could go back the last year. Basically, I would have gone to the best school I could have afforded regardless of what was happening at home if it were at all possible.

    My brother could not stand doing stupid homework, studying boring stuff, or doing anything stupid. Obviously, he’s having some trouble in the real world, where you sometimes have to do stupid things. (I err in the other direction, which leads to having boring, low-paying jobs, but I did get through college! I’m perhaps like those high school football heroes–on paper I’m awesome!)

    My sister got distracted by the fun (as did my current boyfriend). Not me–no one in my college ever had time for fun! I had to get people to visit from home to come with me to most of the cool Boston stuff!

    Oh, the income. I rememer my dad made $5,500 the first year in his business, $11,000 the second year, and $22,000 the third year. That’s an awesome trend! Unfortunately, he went bankrupt in the fourth year. So we were definitely making less than $75,000 even in today’s dollars that whole time.

    Anyway, to answer your question, I don’t think differences in housing wealth had anything to do with my decision on where to go to college. (Actually I was quite ignorant then–I thought all state schools stank and that all Texas schools stank. I might not have had the gall to be too snooty/hopeful for the local options if I had known how competitive they really were. I still would not have wanted to attend the University of Houston with my best friend, but I would have been perfectly happy at the University of Texas at Austin or Rice University. I thought I wanted a small liberal arts university with no football and no fraternities or sororities, with a 50/50 male/female ratio, and with most students living on campus, but I could have found a place to fit in on a larger campus. UT Austin even has an honors major where you don’t even have to pick a major, which I would have loved except for explaining to people what it means to major in “Plan II.”)

    As an adult, I don’t feel that differences in my housing wealth have anything to do with what I can afford (except that if my housing value goes up, then so do my property taxes, so I can actually afford slightly less). So I don’t see that it would affect what colleges my kids would choose, if I had any kids. But I do know that, at least before the housing crises, increases in housing wealth made many people feel wealthier. And feeling wealthier may make it feel like you can afford to send your children to more expensive schools.

    • nicoleandmaggie Says:

      You’re awesome electronically too!

      Re: TX schools, we haven’t had any Rice grad students, but so far I’m more impressed by our graduate students who went to regional schools in the midwest than those who went to UT. That could just be selection though, maybe we only admit the best students from directional schools and the best students from flagships go elsewhere. (Still, our flagship midwestern students also seem to have learned more thinking in college– all our Southern undergrads have to be taught that graduate school does not involve memorizing and repeating back and that’s a good thing.) I don’t think we’ve had any Rice graduates yet though, so I can’t compare them.

      • Debbie M Says:

        Thanks. That could be a nice head-scratcher for a resume: “electronically awesome” as a bullet point!

        No telling about regions; it would make sense that different regions have different cultural attitudes about education. One thing that drew me to my undergrad school was that 90% of the students were from out of state. But then it turned out that quite a large number of those were from the same other state: New York. But I also had friends from CT, GA, MA, and Iran. In grad school (UT Austin), my friends also came from many places (OR, MA, GA, TX, IL), lured by high TA and RA salaries–that was a pleasant surprise.

      • nicoleandmaggie Says:

        I think part of it is also the high school education… in the midwest there are unions, teachers make a lot, and critical thinking is not discouraged. In the South there aren’t unions, teachers make very little, and obedience to authority is encouraged. I always feel like our Midwestern grads got a college education, but our Southern grads have to get both college and graduate school thinking in our first semester since college was like high school.

      • Debbie M Says:

        I lucked out there. I went to the same schools as the NASA kids 8th – 12th grade–definitely two of the better schools I’d been to. Plus I got to go to a school for the gifted and talented in the 7th grade. (Of course my brother had the same good middle and high schools, but that didn’t lead to college for him.) My sister, in a Dallas suburb, told me that her school stank. They were more concerned about making students stay on school premises during lunch (and other rules) than letting them think.

        I was pretty annoyed that even grad courses in history require some memorization of facts (which I am not good at–I pay attention to them enough to draw conclusions but then I forget how I got to those conclusions). And I understand that biology requires quite a lot of memorization (anatomy and whatnot). But the other subjects were better.

  3. becca Says:

    Do Midwestern institutions perhaps have a greater % of students on either end of the parental education spectrum?

    Coming from a Midwestern flagship undergrad, I was *extremely disappointed* when grad school (in biosciences) involved a great deal of the lecture/memorize textbook model of schooling. The problem was exacerbated by attending an academic medical school- the grad students got a LOT more critical thinking focus than the med students, so the profs thought they were doing all right by us. Yet the emphasis on research for profs seemed to lead to very spotty quality teaching (some profs were awesome, some phoned it in, others literally simply did not show up to class). Upper level undergrad was much richer intellectually.

    There was a recent article in the Chronicle about research that found that first generation students, and those pursuing advanced degrees, were more likely to take “deep learning” approaches than students whose parents had Bachelor’s degrees. It sounds right to me (the first generation students are already often open to adapting their prof’s value systems for education, and the advanced degree recipients often pass down those values to their kids. It’s the ones in the middle that are raised on tales of Mom and Dad meeting at a tailgate that expect college to be like stereotypical high school but with beer).
    So I do wonder if “deep learning inclination” really varies by geographic location, or simply if there’s a selection bias in the folks that do value it and who do go to certain schools being more likely to go onto grad school.

    As an aside, I think housing value should be taken into account by the FAFSA, to a small degree. I suspect that would offset housing impacting college choice, and, post-housing bubble collapse, indirectly have a general positive impact at increasing diversity in universities.

    • nicoleandmaggie Says:

      Given what I know about how K-12 education works in the Midwest compared to the South, including the SAT scores of the teachers (a poor proxy for intelligence, but there’s still big differences), the types of textbooks, and the culture of questioning vs. obedience… I don’t think you need a bifuricated educational spectrum to explain differences in quality of college education in different regions.

  4. rented life Says:

    My parents home was “rich” for the area. I went much further away than most people did but my brother fell into the trap of just going to the nearest “city” to go to school. (I am the rebel of the family. I used to resent that, I embrace it now.) I’m not sure the relationship between our decisions. Most of my peers were pretty determined to get out of the area, but the majority didn’t. It’s a pretty poor town overall, and still is.

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