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Creative Solutions for College Sticker Shock

Creative Solutions for College Sticker Shock

September 07, 2021

Imagine your reaction to the following scene: You return home from work one night to find your teenage daughter running gleefully about with a letter in her hand. When you calm her down, she tells you that she has just been accepted to the incoming freshman class of a highly regarded private college. After she tells you that the tuition, along with room and board, is $40,000 a year, you wonder, “So, what’s the good news?”

Many parents may be in for “sticker shock” when they have to confront the cost of a four-year private college degree. Graduate school often carries an even more staggering price tag. While growth in the cost of higher education has slowed in recent years, tuition and fees continue to outpace inflation. Couple the high cost of college with the other financial pressures on families these days, and you have a prescription for some serious financial soul searching.

Although parents and students can avail themselves of a wide variety of scholarship programs, loan packages, and work-study arrangements, there are even more creative ways to hold down college costs. While not applicable to every situation, ask yourself whether either of the following ideas might benefit your family:

Cost Cutter #1—The Student Condo:

Under this arrangement, Mom and Dad purchase a condominium for their child. Although a student condo is not purchased for its tax advantages (however, check with your tax professional about the possibility of deducting the mortgage interest) parents can expect that their child may have quieter-than-average housing, free from many of the distractions of college dorm life.

With room and board charges at an all-time high, this option may not be as farfetched as it first seems. The student condo may be an interesting solution to those who hold an optimistic view of real estate values a few years down the road, especially if more than one child can use the condo while attending a school in the same area.

Cost Cutter #2—The Student “Condo-dorm”:

The “condo-dorm” allows Mom and Dad to hire their child as the student-manager of a property they purchase for both its tax and non-tax advantages. The idea is to have the student find tenants, collect rents, and manage the property. Mom and Dad can even pay a salary to their student for services rendered as resident property manager. The salary could, in the absence of other taxable income, be below the student’s filing threshold for income tax purposes.

Since the parents are entrusting their child with some serious responsibilities, the condo-dorm carries some significant liabilities that may not make it suitable for undergraduate students. Condo-dorms may make better sense for mature, graduate students.

While these solutions to college sticker shock are a little off the beaten path, they offer enterprising parents and their children an opportunity to use real estate to their advantage. If this appeals to you, you should seek tax and legal advice before proceeding.


Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

This article was prepared by Liberty Publishing, Inc.


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