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Tips, resources and advice for landlords and property managers

How Much Rent Can a College Student Afford?

Are you looking to rent out your property to college students? If so, getting to know how they budget for their rent expense – and how much they can reasonably afford – is a wise move. By doing so, you can set a price that attracts quality tenants.

Moving out of their parent’s homes to attend college is a significant milestone for many young people and a pivotal transition to adulthood. It’s also an exciting and adventurous time for them to experience all that post-secondary life has to offer.

However, not all students are keen on staying in a dorm, so they’ll be exploring their options for renting off-campus as their first semester approaches.

Are you a landlord looking to rent out your property to a student? If so, it’s wise to familiarize yourself with some of the challenges they face living on their own, especially when it comes to budgeting for the monthly rent.

In this article, we’ll explore the various factors students consider when determining their rent budget. And we’ll review some tips to help them save money so they can meet their rent payment obligations without a hitch. 

How Much Should a College Student Spend on Rent?

It’s no surprise that the amount of income a student generates each month impacts the type of rental unit they can afford. Quite simply, the more they earn, the more money they can put toward rent payments.

Most full-time students finance their education and living costs through government loans or student lines of credit. Some supplement their loans with grants and scholarships or a part-time job. And others receive a regular allowance from their parents. 

As a landlord, you should inquire about a student’s income sources, as some are more reliable and stable than others. In doing so, you can assess their ability to keep up with rent payments.

But how much of their income should a student allocate toward rent? What amount will ensure they can live comfortably and not strain their bank account?

While there’s no clear answer to this question, a great starting point is for them to calculate their rent-to-income ratio. This financial metric measures the amount of rent paid relative to net income.

A widely cited rule of thumb for tenants is to spend no more than 30% of net income on rent. While this figure may be unattainable for some students, it’s worth aiming for. It’ll leave them with enough slack in their budget to cover other recurring expenses. 

Examining a student’s rent-to-income ratio is worthwhile. After all, you don’t want to risk taking on a tenant who’s likely to miss rent payments. 

Students who dedicate more than 50% of their net income toward rent have an increased risk of defaulting on their payments. This is especially true if they have few income sources. As such, you should be wary of taking them on as tenants, even if they appear genuinely honest and responsible.

How Students’ Everyday Expenses Affect Their Rent

In addition to income, a student’s day-to-day expenses will dictate how much they can spend on rent. 

Besides rent, typical expenses students need to account for are:

  • Food
  • Utilities
  • Cell phone
  • Transportation
  • Fuel (if using a vehicle)
  • Tenant’s insurance
  • Books and supplies
  • Banking fees
  • Entertainment 

Naturally, lower everyday expenses will enable students to comfortably cover their rent, especially in locations where high rent prices are the norm. As a result, they’ll be on the lookout for rental properties that will allow them to stretch their budgets as much as possible.

As a landlord, you can attract student tenants by bundling utilities like cable, gas, water, and internet with your monthly rental fee, offering a lower total price. In most cases, it’ll be cheaper for a student to pay for these expenses as part of a single rent fee than having to pay them separately on their own. 

In addition to bundling utilities, you can offer special discounts and incentives, such as one month of free rent, a cash move-in bonus, gift cards, and free internet. Students who lead a frugal lifestyle and adhere to a strict budget will appreciate these extra savings.

Short-term Lease

When drafting a budget, college students also consider the length of their lease. The standard post-secondary school year spans eight months. However, most landlords require tenants to commit to a minimum of a one-year lease, which presents a conflict of interest.

As a result, if you’re looking to cater to student tenants, be prepared to accept shorter tenancies. A solution worth exploring is to allow the student to sublease the property during the summer to another tenant who requires short-term accommodation.

How A Student’s Credit Score Impacts Their Rental Options

Naturally, students with low credit scores will face more challenges securing a rental unit, as fewer landlords will want to accept them as tenants. Thus, credit scores significantly determine their rent budget and where they can ultimately live.

Before granting a student tenancy, it’s prudent to pull their credit report and review their credit standing and experience with debt and bill payments. Knowing these details will allow you to assess their likelihood of defaulting on their monthly rent.

Some students may offer to supply their credit reports to you. However, you shouldn’t accept credit reports directly from tenants, as they may be inaccurate, outdated, or fraudulent. 

Your best bet is to obtain a credit report personally. SingleKey offers an easy-to-read, comprehensive credit report that provides you with the insight you need to screen tenants. And it’s ready in just five minutes!

One crucial aspect you must remember when assessing students’ credit reports is that some may have a non-existent credit score.

A non-existent credit score is not the same as a zero credit score or one that’s excessively low. Instead, it signifies that the student lacks a credit history. This means that credit bureaus (Equifax and TransUnion) have insufficient financial data on the student to compile and calculate a credit score.

For this reason, you shouldn’t automatically assume a particular student is incapable of paying timely rent because they don’t possess a credit score. You need to look at the broader picture regarding their financial history, such as whether they pay their cell phone bill on time.

Did you know you can help boost a student’s credit score as a landlord? All you have to do is forward their rent payment details to Canada’s credit bureaus (on-time rent payments enhance an individual’s credit standing).

Luckily, SingleKey’s Rent Collection platform makes this process super easy. It automatically reports all tenant rent payments directly to Equifax. As a result, students can improve their credit score and achieve greater financial freedom with each payment they make.

The Role of a Co-signor

Students who struggle to secure tenancy due to a low credit score or insufficient income can ask someone to co-sign their lease agreement.

As a landlord, asking for a co-signor to guarantee the rent can provide you with an extra layer of financial security. The reason is that an individual who acts as a co-signor is legally responsible for the rent, like the student. Should the student default on their rent, the co-signor will step in and cover any missed payments.

Usually, the co-signor will be a parent or other close family member. Whoever it is should have a stable income and solid credit history, so ensure you inquire about these details.

Splitting Costs with Roommates

The most efficient way for students to trim their rent budget is to move in with one or more additional people. It’s also an excellent way for them to split the cost of other shared expenses like utilities, streaming services, and transportation.

Due to the financial benefits of living with roommates, there’s a good chance that multiple people (perhaps all students) will be living in your rental unit. 

As a landlord, this is good news for you. Since each student will pay a fraction of the total rent cost, they’ll have a much easier time meeting their rent payments. As a result, you can charge a higher monthly rate.

However, allowing multiple people to live under one roof also has drawbacks. 

There’s a greater chance one of them will damage your property, cause excessive noise at night, or become belligerent toward their neighbours. Or tenants’ personalities and lifestyles may clash, leading to frequent disputes and confrontations. 

As with a single tenant, ensure you conduct a thorough credit and background check for each person who will live in your rental.

How Students Can Increase Their Rent Budget 

Creative and financially savvy students can find ways to reduce their expenses and boost their income. As a result, they’ll be able to afford to live in a more upscale apartment that charges steeper rent. 

Here are some tips for students looking to optimize their college budget:

  • Use apps like Flipp to net discounts on everyday spending
  • Apply for scholarships
  • Start a side hustle
  • Avoid credit cards, or at least don’t be careless using them. Only charge purchases only if you’re confident you can pay off the monthly balance and earn lucrative rewards points or cash back.
  • Monitor cell phone usage – never exceed your data limit
  • Purchase electronic versions of textbooks
  • Utilize student discounts whenever possible
  • Prioritize public transportation over driving 
  • Cook more meals at home
  • Purchase everyday items in bulk
  • Open a high-yield savings account that charges zero fees
  • Explore campus amenities and group activities. For example, the college campus may offer free gym membership and movie nights
  • Maximize school-related tax deductions and tax credits

A credit report provides valuable details about an applicant’s financial situation. These include their credit score, the amount and type of debt they carry, whether they pay late or on time, etc.

Final Thoughts

 There’s no exact answer regarding how much rent a college student can afford. While a budget that allocates 30% of net income to rent is a great place to start, there are no guarantees students will adhere to this guideline. A wide range of factors can result in them spending much more than this amount, primarily a low income and hefty day-to-day expenses.

Since most college students earn little income and have limited credit experience, renting your property out to them comes with additional risks. Their circumstances and financial inexperience may result in them falling behind on their rent, hurting your bottom line.

Running a credit and background report is a solid first step in screening student tenants. But even the most diligent, responsible, and financially-savvy students can encounter money problems. 

By signing up for SingleKey’s Rent Guarantee program, your rental income will be insured for up to 12 months and $60,000. As a result, you can rest easy knowing you won’t experience a sudden disruption in rent payments.

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