Stanford Eliminates Home Equity From Aid Consideration

Stanford Eliminates Home Equity From Aid Consideration

Should Stanford’s financial aid policies encourage homeownership among students’ parents? Yes, the Board of Trustees answered in December, announcing that Stanford would no longer include home equity as part of parents’ assets when calculating financial aid.

Previously, the Financial Aid Office considered home equity less than 1.2 times income as an asset for families earning more than $150,000. Now, a family living in a multi-million dollar home, with hundreds of thousands of dollars of home equity and a moderate income, could receive aid.

“We did this in recognition that home equity is not like other assets that families may have; it is often not an accessible resource for families,” Director of Financial Aid Karen Cooper wrote in an email to The Review. “We decided to take this step to remove home equity from consideration completely at this point to remove that concern and potential barrier to application for families.”

Cooper added the change will mainly impact students from upper-middle income backgrounds, since the University already excludes home equity of lower income families under current policy. She also expects the new policy to increase grants to families who already receive aid.

Why did Stanford choose to pursue this policy and not alternatives that would benefit both families who rent and those who own homes?

“The majority of our applicants are home owners and generally those who are renters are already in the income less than $125,000 category [and have tuition fully covered],” Cooper stated. “As you may know, the federal financial aid formula does not include home equity and so it is a natural area of concern for many families.”

The Board’s decision follows soaring house prices, especially in metropolitan areas. Zillow recorded growth in 685 of the 740 metropolitan areas it tracks and reported an 8% rise in overall U.S. housing prices over the past year. The Case-Shiller National Home Price Index rose to an all-time high of 206 in October, up from 134 in 2012 and well above its pre-crisis peak of 184 in 2006. Home price appreciation has been most extreme in western cities, so the University’s aid change will likely help residents from the Bay Area more than those from Midwestern suburbs or the rural South.

The economic incentives of eliminating home equity from aid consideration could also impact how Stanford families structure their investments and savings. Since only home equity will be discounted, families may invest more in home equity at the expense of retirement savings or entrepreneurial endeavors.

Some research illustrates that homeownership positively impacts high school and college completion rates, though this evidence is stronger for low-income households. As for the general benefits of homeownership, economists are split. Arnold Kling, formerly of Freddie Mac and George Mason University, writes that homeownership encourages residents to build social capital, like better roads and schools, and to care for their properties, thus improving property value for neighbors. Edward Glaeser, an economics professor at Harvard, argues the “American Dream can be realized in a rented urban apartment just as easily as behind a suburban white picket fence.”

Stanford’s discounting of home equity is just one example of an oft-overlooked—and perhaps unavoidable—feature of the entire aid system: financial aid policies are rarely value-free and can reflect deeper preferences regarding social, familial and economic organization. For example, consider if a financial aid system should treat families with two working parents the same as families where one parent is not in the labor market. Imagine, in Family A, two parents each make $75,000 a year, and in Family B, one parent makes $150,000 a year and the other does not work. Should Stanford give the same aid to each family? Such a decision is unavoidably values-oriented, as it deals with questions of economic fairness, child development, and gender equality.

Concerns over prioritizing homeownership, its geographic and socioeconomic implications, and other value judgments may soon be addressed, as Chairman of the Board of Trustees Jeffrey Raikes has indicated more changes to aid policies are forthcoming.

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