How to Offset College Tuition

College. The prospect of sending your child away for school can be both thrilling and daunting. There are so many things to consider, both for them and for you. After all, these years are no doubt the starting point for a whole new trajectory in your son or daughter's life. But have you also considered that these years could be the starting point for a whole new trajectory in your journey of building wealth? Or that you could completely offset the expense of tuition by purchasing a home for your student to live in? We'll get to that, but first let's start by exploring the colleges and universities here in Charleston, just incase they aren't on your list of possibilities yet.

Did you know Charleston, SC, is home to multiple undergrad colleges and universities? Here are some quick facts on four of them:

1. College of Charleston

• Enrollment: Approximately 10,000 students
• Acceptance Rate: 79%
• Average SAT: 1210-1360
• Average ACT: 26-30
• Annual Tuition: $12,158 (in-state), $33,502 (out-of-state)

• Areas of Study: The College of Charleston offers a wide range of academic programs, including business, education, liberal arts, sciences, and more. It is particularly renowned for its programs in marine biology, historic preservation, and arts management.
• Mascot: The College of Charleston's mascot is the Cougar.

2. The Citadel, The Military College of South Carolina

• Enrollment: Approximately 3,700 cadets
• Acceptance Rate: 79%
• Average SAT: 1080-1220
• Average ACT: 20-27
• Annual Tuition: $12,448 (in-state), $33,892 (out-of-state)

• Areas of Study: The Citadel is known for its rigorous military education and offers programs in various fields such as engineering, business administration, political science, and intelligence and security studies.
• Mascot: The Citadel's mascot is the Bulldog.

3. Charleston Southern University

• Enrollment: Approximately 3,600 students
• Acceptance Rate: 61%
• Average SAT: 960-1100
• Average ACT: 18-23
• Annual Tuition: $25,540

• Areas of Study: Charleston Southern University offers a diverse array of undergraduate and graduate programs, with strengths in fields such as nursing, education, criminal justice, and computer science.
• Mascot: Charleston Southern University's mascot is the Buccaneer.

4. Trident Technical College

• Enrollment: Approximately 15,000 students
• Acceptance Rate: Open admission policy
• No SAT/ACT requirements
• Annual Tuition: $5,094 (in-state), $9,738 (out-of-state)

• Areas of Study: Trident Technical College specializes in providing career-focused education and offers programs in areas such as health sciences, engineering technology, culinary arts, and information technology.
• Mascot: Trident Technical College does not have an official mascot.

Of course, all of these schools give your student access to the rich history, vibrant culture, beautiful beaches, and mild climate of one of the world's most popular cities for travel and leisure, Charleston, South Carolina. This alone makes all of them a pretty good choice if you ask me :)

Now let's talk about how you can turn these college years, often thought of as a drain on your finances, into an opportunity to build your wealth. Consider this scenario: instead of paying rent for your student's accommodation each month, you purchase a property for them to live in. With rising property values, you not only provide your student with a comfortable living space, but also make a smart investment that can potentially yield significant returns in the future.

You can reduce the cost of your investment by collecting rent from your student's roommates. This also provides an opportunity for your student to learn about managing a property, and they can see first-hand how owning property builds wealth. This could inspire them to do the same for themselves after college.

Let's use real numbers to compare the financial advantages of purchasing a property for your student versus renting one for four years. For this discussion we'll use $350,000 for a purchase price, and projected property value appreciation of 5% per year, and the average rent for 0-2 bedrooms of $2428, with rent increases of 5% per year:

Scenario: Purchasing a Home

• Purchase Price: $350,000
• Down Payment: $70,000 (20%)
• Loan Terms: 30 years fixed-rate mortgage
• Interest Rate: 6.875%
• APR: 7.144%
• Annual Property Taxes: $3,500
• Annual Homeowners Insurance: Estimated based on the property's features and location

Using the Bankrate mortgage calculator, we'll estimate the monthly mortgage payment for the property:

• Monthly Mortgage Payment: Approximately $2,302.25 (excluding property taxes and insurance)

Additional Costs:

• Property Taxes: The annual property tax rate is around $3,500 per year, which would add approximately $291.67 to the monthly payment.

• Homeowners Insurance: The cost of homeowners insurance varies based on factors such as the property's features and location. Let's estimate it at $1,000 per year, which would add approximately $83.33 to the monthly payment.

Total Monthly Cost: $2,677.25

Annual Property Appreciation: 5% of $350,000 = $17,500, then compounds to $18,375, $19,294, and $20,258 for years 2-4.

Depreciation: As a rental property owner, you may be eligible to claim depreciation on your tax return, which can help offset rental income. Let's assume a depreciation expense of $10,000 per year.

Comparison:

• Total Cost of Purchasing (4 Years):

  • Down Payment: $70,000
  • Monthly Payments: $2,677.25 * 48 = $128,778
  • Total Cost: $70,000 + $128,778 = $198,778
  • Net Gain from Property Appreciation of 5% per year: $17,500 + 18,375 + 19,294 + 20,258 = $75,427
    
  • Depreciation Deduction: $10,000 * 4 = $40,000
  • Net Cost after Appreciation and Depreciation Deduction: $198,778 - $75,427 - $40,000 = $83,351

• Total Cost of Renting (4 Years):

  • Year 1: $2,428 * 12 = $29,136
  • Year 2: $2,549.40 * 12 = $30,592.80
  • Year 3: $2,676.87 * 12 = $32,122.44
  • Year 4: $2,810.71 * 12 = $33,728.52
  • Total Cost: $29,136 + $30,592.80 + $32,122.44 + $33,728.52 = $125,579.76

Savings with Purchasing:

• Total Savings: $125,579.76 - $83,351 = $42,229

Based on these calculations, purchasing a home for your student to live in while attending college in Charleston could potentially save you around $42,229 over four years compared to renting. This takes into account property appreciation, depreciation deduction, and the cumulative cost of renting with annual rent increases. That's like getting nearly all of the tuition for free at College of Charleston or The Citadel!

Curious about these concepts and how they could work for you? Give me a call at 843-800-1060 to discuss your personal situation, or fill out the form below.

Note: These numbers are possible scenarios, and not guaranteed. I am not a tax advisor. Seek tax advice from your trusted tax professional.