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Can Student Loans Lead to Foreclosures?

For many parents, sending kids to college is a large added expense. But for some parents, taking on this expense may even result in foreclosure of their homes according to an analysis by Ameritech Financial, a document preparation company. Ameritech Financial said that parents should consider student loans carefully, and think about applying for income-driven repayment plans to remain financially sound.

Parents might be inclined to apply for additional loans to fund their child's education according to Tom Knickerbocker, EVP of Ameritech Financial, "because they think their kids aren't ready to deal with the financial consequences of missing payments on loans, or worse."

One way of solving this dilemma would be to get student loan borrowers to apply for income-driven repayment plans that may reduce their monthly student loans, Ameritech Financial advised.

Ameritech Financial notes that raising a child is expensive, and college just adds to that expense. According to a recent study by sociologists Jacob Faber of New York University and Peter Rich of Cornell, just a one percent increase in college attendance could result in an additional 11,200 to 27,400 foreclosures. According to Faber and Rich, “the gap between the total cost and the financial aid provided may still be too large for many families across the income distribution to bear.”

“Both of these investments, investing in college and investing in home equity, are what we tell everyone are the two most important tools for achieving the American dream,” Faber said.

Faber and Rich's study intends to illuminate the financial burden of higher education, particularly during a time of extreme economic instability. Faber and Rich stated that while subprime mortgage lending and unemployment rates were largely and indisputably responsible for the barrage of foreclosures during the housing crisis, additional sources of “financial risk” had a definite effect on the exacerbation of the crisis.

"We advise parents to think carefully about their financial situation before they take out any loans for their student's college education. It could benefit them to consult a financial expert beforehand," Knickerbocker of Ameritech Financial said.

Read more about Faber and Rich's study on Student Loans and Housing Delinquencies:

Higher Education Costs and High Foreclosure Rates

About Author: Seth Welborn

Seth Welborn is a Reporter for DS News and MReport. A graduate of Harding University, he has covered numerous topics across the real estate and default servicing industries. Additionally, he has written B2B marketing copy for Dallas-based companies such as AT&T. An East Texas Native, he also works part-time as a photographer.

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