A Family Affair: The Effects of College on Parent and Student Finances

Paying for college is often a family affair, with both parents and students contributing. We study the effects of college on family finances using administrative data on the universe of federal aid applicants in California linked to credit records. We provide the first comprehensive analysis of how both students and their parents use debt with college attendance and how prices affect those decisions. We start by using an event-study framework to explore how parents’ use of debt and credit outcomes change after their child first submits a federal aid application for college enrollment. While total debt does not change, higher-income parents shift balances from other debt to educational loans. We find that lower-income parents take out more education loans, experience less delinquency on non-educational debt, and see their credit scores rise. We then use discontinuities in eligibility for generous financial aid to test how an exogenous change in the price of college affects parental debt and financial health. We find that parents finance increases in the price of college through educational loans as well as home equity loans. Higher prices increase parental delinquency on debt. The findings highlight an important channel by which college and its rising cost may spill over into the broader financial health of families and economy.