Non-Technical Summary:
Young men and women contemplating college logically consider both the direct and indirect (opportunity) costs associated with doing so. Local economic conditions, like the unemployment rate and housing prices, factor in to these decisions. Theoretically, higher unemployment rates reduce the opportunity cost associated with attending college, making enrollment more attractive, but higher unemployment may also hinder the ability to pay for college. Rising housing prices likewise could create attractive employment and investment opportunities luring youth away from higher education, or, for home owning households, could enhance the ability to finance higher education. Thus, theoretically, the impact of the unemployment rate and of housing prices on enrollment is uncertain. Empirically, substantial evidence indicates that higher unemployment acts to increase college enrollment. Evidence from the US indicates that housing price appreciation also increases enrollment, particularly at four-year institutions – for students from low income, home-owning households. However, enrollment does not guarantee completion. On average only about 66% of those who enroll in a four-year college in the US complete within six years. Labor and housing market conditions may affect persistence just as they do enrollment.
We use longitudinal data on US students enrolling in four-year colleges during the 1995-96 academic year to model post-matriculation enrollment behavior as a function of state-specific unemployment rates and housing prices as well as a rich set of individual level demographic, household, and academic background information. We first demonstrate that both the unemployment rate and housing prices changed significantly over the 1995-2001 time period. Such variation is necessary in order to estimate the effect of these economic conditions on enrollment behavior.
While we are unable to model the enrollment decision per se – since our sample consists only of individuals who have enrolled – we can differentiate between matriculation as a full-time and as a part-time student. We find that the probability of matriculating as a part-time student declines as the unemployment rate rises. Both home ownership and housing price appreciation are also associated with a lower probability of part-time enrollment. Most interesting is the finding that it is only students from low income, home-owning households, not students from high income, home-owning households, who are more likely to enroll full-time when housing prices appreciate. These results regarding the intensive margin of the matriculation decision mirror those observed on the extensive or enrollment margin.
Examination of the subsequent enrollment path yields a variety of interesting findings. First, results indicate that rising unemployment rates are associated with only a small increase in part-time enrollment and a small decrease in full-time enrollment, but little change in graduation or dropout rates six year after matriculation. Those most sensitive to rising unemployment are students from higher income households who may be choosing to delay graduation by remaining in college longer. These are the students most able to afford such an extension. Students from higher income households and home owning households are, not surprisingly, significantly more likely to graduate and less likely to drop out as compared with their classmates. Housing price appreciation is associated with a lower probability of graduating and a higher probability of dropping out. This effect is particularly strong for students from less advantaged households, whether measured based on income or parental education. Housing prices do not have a differential effect by home ownership or gender. Efforts to explain the link between housing price appreciation and persistence using measures of labor market opportunities or college resources more directly have not been successful. Colleges and policy makers should consider the sensitivity of less advantaged students to housing market conditions if they wish to increase college attainment rates for this population.