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The Effects of Negative Equity on Children’s Educational Outcomes (WP-21-04)

Vicki Been, Ingrid Ellen, David Figlio, Ashlyn Nelson, Stephen Ross, Amy Ellen Schwartz, and Leanna Stiefel

This study examines the effects of negative equity on children’s academic performance, using data on children attending Florida public schools and housing transactions from the State of Florida. The researchers’ empirical strategy exploits variation over time in the timing of family moves to Florida in order to account for household sorting into neighborhoods and schools and selection into initial mortgage terms. In contrast to the existing literature on foreclosure and children’s outcomes, they find that Florida students with the highest risk of negative equity exhibit significantly higher test score growth. These effects are largest among Black students and students who qualify for free or reduced-priced lunch. The authors find evidence supporting two underlying mechanisms: (1) consumption patterns suggest that families in negative equity may reduce the impact of income losses on consumption by forgoing mortgage payments, and (2) mobility patterns suggest that families exposed to high levels of negative equity may move to schools that are of higher quality on average. While negative equity and foreclosure are undesirable, the changing incentives in terms of mortgage delinquency may have helped families manage the economic shocks caused by the great recession, as well as temporarily reduced the housing market barriers faced by low-income households when attempting to access educational opportunities.

Vicki Been, Judge Edward Weinfeld Professor of Law, New York University

Ingrid Ellen, Paulette Goddard Professor of Urban Policy and Planning, New York University

David Figlio, Orrington Lunt Professor of Education and Social Policy and IPR Fellow, Northwestern University

Ashlyn Nelson, Associate Professor, Public and Environmental Affairs, Indiana University

Stephen Ross, Professor of Economics, University of Connecticut

Amy Ellen Schwartz, Professor, Economics and Public Administration and International Affairs, Syracuse University

Leanna Stiefel, Professor of Economics and Public Service, New York University

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