The College’s Financial Aid Office will keep its need-analysis procedure despite economic changes that have slashed home equity values, according to Director of College Aid Alicia Reyes. She cited longstanding evaluative practices as the reason the College is already prepared for home equity drops among applicants that have taken other schools off guard.
Before the financial crisis, many families relied on home equity loans to help pay for college tuition, and financial aid awards at universities nationwide have taken this practice into account. But as home prices rose in recent decades, schools found that asking for parental contributions based on home equity put low-income homeowners at a disadvantage. Only about 250 of the 2,000 four-year colleges nationwide—schools which are typically more costly, including the U of C—even require applicants for financial aid to report home value and mortgage debt, according to an April 5 New York Times article. This has caused problems for many elite schools’ need-analysis models, which have viewed home equity as a surefire college fund.
The U of C, however, was prepared when that fund ran dry. Because of the University’s familiarity with evaluating home equity, they will better be able to address the changes in the value of homes.
“For many years we’ve reviewed home equity in the course of reviewing a financial aid application,” Reyes said. “These are not new questions...they’ve been asked for more than 20 years.”
Reyes said that home equity is also not the determining variable for financial aid packages for most families paying U of C tuition. “For more than 80 percent of our aid applicants, I would say income is the driver,” she said.
Despite the College’s preparedness, Reyes noted changes in the pool of applicants for financial aid that could be problematic. “We have more families than ever before where the mortgage balance exceeds the value [of their house],” she said.
This means that their contribution from assets like home equity will be zero, and the parents’ contribution must come entirely from income—a potential hazard in an unstable economy. Typically these are families who bought homes in the last five years in areas where house prices were skyrocketing. “It seems to be most common in the areas where home values have dropped significantly, like California, Florida, New Mexico, and Arizona,” Reyes said.
Reyes also notes that the College has had to place a cap on the amount parents can contribute from home equity due to widespread unemployment and underemployment of applicants’ parents.
While Reyes said the drop in home equity values is problematic for some applicants, she sees no need to change the College’s awarding policy. “Have we changed our policy of reviewing and considering each family individually? No. We are responding on an individual basis,” she said.