Taking Home Value Out of the Equation

Those who purchased homes in many parts of California 20 or so years ago are in some senses fortunate. Housing prices have gone up again and again, and there are no signs that housing values are about to go down. Small homes regularly go for half a million dollars.

So those who bought homes 20 years ago for a few hundred thousand dollars -- what people who consider themselves middle-class professionals might have done -- now find themselves owning homes worth $1 million or more. In some sense they are rich, and they are certainly winners in the housing sweepstakes compared to those without any home equity (or for the poor, any housing at all).

But they don’t necessarily feel wealthy. Their salaries have not gone up at the same rate as housing values (or anything close). So when it comes to their children’s college choices, many such families are frugal -- and they are attracted to the world-class University of California campuses, where the sticker price is a fraction of those of private colleges.

In the last two years, the University of California -- under pressure from Governor Jerry Brown -- has been admitting thousands more Californians than in previous years. That move followed years in which the university system, responding to deep state budget cuts, increased its reliance on out-of-state students. The combination of that shift and housing prices is creating a challenge for private institutions like Occidental College.

For Occidental, which has a strong academic reputation but not one that is confused with Stanford’s, more University of California slots created a problem. So this year, the college opted to take home equity out of the calculation of aid awards for students from families that the college considers middle class.

Occidental hasn’t decided whether to continue the experiment, but considers it to have been a success, and likely will stick with the approach. In many ways, Occidental’s strategy illustrates how one change in the admissions ecosystem can force other changes.

Historically, Californians have been a major focus of Occidental’s admissions strategy, and about 40 percent of students typically are from the state. So doing well at home is crucial to the college’s success.

The admissions cycle that produced the first-year students who enrolled in fall 2016 was also the first in which the University of California was admitting more Californians. And Occidental felt the shift. The California yield rate -- normally 17 percent -- dropped to 14 percent. Typically, Occidental has a slightly lower rate for Californians than others, but the drop worried the college. The share of Californians in the class fell to 36 percent.

“This is our backyard,” said Gina Becerril, director of financial aid.

Occidental, as a small liberal arts college, tends to distinguish itself from its public competitors based on its size and focus. But its top competitors are large universities: for students whom it admits but who enroll elsewhere, two of the top three destinations are Berkeley and UCLA. Nearly a third of those admitted to Occidental but enrolling elsewhere attend public institutions, generally much larger than Occidental, which has about 2,000 students.

Tuition rates suggest why it's tough to compete with the University of California. Tuition at Occidental is just under $50,000, or about four times what a California resident would pay to attend the University of California. Almost all Occidental students are residential, so total costs for those not receiving aid approach $70,000.

Becerril said that Occidental does a good job of helping those with the lowest family incomes, and works hard on diversity. Indeed, the college enrolls a slight majority of nonwhite students, and 20 percent of Occidental students are eligible for Pell Grants (a figure that is smaller than what you would find at UC, but well above the levels of many private colleges).

When Becerril was talking to families who were torn about whether they could afford Occidental, people repeatedly said that they were declared ineligible for federal or institutional aid, but didn’t feel they could afford the college.

These were people who identify as middle class -- small business owners, teachers and others who work for state or local governments, she said. They were people who had an awareness that “they couldn’t afford to purchase they home they live in if they were buying today.”

Many said that their home equity was their primary source of retirement savings. Others reported doubts on whether they could get a home equity loan. Many said that they were cash poor, even if they lived in homes worth $1 million or more.

So this year, the college eliminated consideration of home equity for California residents with family incomes of $125,000 to $150,000. Without the home-equity asset included, many families who otherwise would not have qualified for aid became eligible.

The results seem clear. The California yield rate is up to 18 percent. The share of Californians in the class is at the standard levels, not last year’s depressed figure.

Only 14 percent of Californians (or 6 percent of the total class) enrolling this fall benefited from extra aid because of the removal of home equity from the college’s calculation of family ability to pay. And these students generally did pay something to Occidental -- in some cases, substantial shares of total costs. The rest of the Californians included both those without home equity at levels that would have disqualified them for aid and those who were wealthy enough that their lack of aid didn’t make a difference.

But it was that small share of Californians for whom the change made a difference. About 36 students who enrolled received the extra aid as a result of the change.

Vince Cuseo, vice president for enrollment and dean of admission at Occidental, said that the 36 students who received extra aid make up a meaningful if small share of the incoming class, which totals 564.

In admissions, Cuseo said, Occidental may be “a small blip” to the University of California. “But when you are in a state where that’s the flagship university, it matters.”

Cuseo said he knows that there will always be some Occidental admits who opt for UCLA or Berkeley. But changing the policy on home equity was “about making sure that families have an option of private higher education.”

And he's happy to have those 36 students.