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Rent Vs. Buy: College Edition

Living Smart

 Girl writing on brown moving box.

One of the most common arguments in personal finance is in determining whether it’s better to rent a place to live or to buy one. The short answer is: It depends. But what it depends on changes a lot from one person to another. It’s especially tricky for college students.

For many college students, the idea of owning a home while they’re in college is ridiculous. It costs too much, and no one could possibly pay for tuition and a mortgage! It may be expensive, but so is living in a college town. The question is: Is it cheaper than the dorm? Consider these factors in your calculation.

1.) How much is rent? Rental rates have been climbing across the country, and college towns are no exception. According to the Bureau of Labor Statistics, the average U.S. renter spends about $1,070 a month on rent. That’s as much as a mortgage of $200,000. You could get quite a lot of house for that much!

2.) How can you pay a mortgage? Even if you don’t work outside school, there are a number of options available to pay your mortgage. If you get grants that are usable for “living expenses,” that often can include your mortgage payment. You can also use student loan money – it’s no different than paying rent, except you’ll get some of the money back in the form of equity.

3.) What do you want to do after college? If you plan to run off and join the Peace Corps or know you want to move to another city for work, buying a house can be a poor decision. You’ll end up having to sell the house in a time crunch, which never ends well for sellers. You could rent it out, but being an absentee landlord can be a tough job, and you’ll still be responsible for mortgage payments and taxes if it sits vacant over the summer.

If, on the other hand, you want to remain in the area after graduation, buying a house can make a lot of sense. If you’re pursuing an internship that might turn into a job, you’ll benefit from the equity. If you don’t have plans yet, being a landlord can be a good way to supplement your income.

4.) The down payment dilemma. If you had $20,000 sitting around, you wouldn’t be a typical college student. Yet that’s what it would cost to put a down payment on the hypothetical house above. There are down payment assistance programs available through many states, but they focus on less-developed areas. If your parents are helping with college expenses, they may be willing to chip in the rent money upfront to help lower the costs over the long term. Many creditors will be reluctant to lend without a reliable cosigner anyway. A final note of caution: It’s illegal to use any part of student loan money toward the down payment on a home.

No matter where you live, what matters is that you protect your biggest investment: your education! Study hard!