A Unique Way To Pay For College

The thought of shelling out $100k to $250k for a college education keeps many parents awake at night.  I was one of those parents.  A few years ago, I had too much coffee and wrote about one way to cover the costs of a college degree. Disclaimer:  The interest rate for PLUS loans has gone up a bit since then, but 2-bedroom condos in that building are now for sale at $146,000 and $165,000.  

One way to pay for college: Say your daughter wants to go to University of Oregon. In-state off-campus cost of attendance for 13-14 is $24,352. Borrow the full $24,352 in a PLUS loan (Federal education loan for parents) with a current interest rate of less than 6%, and you can defer the payment of the principal until 6 month after your daughter graduates. From the PLUS loan, $9,763 goes to the University to pay for tuition/fees, leaving a $14,589 credit balance to pay for room, board, books, etc. This goes into your pocket, half at the beginning of the fall semester, and half at the beginning of the spring semester. 
Rather than having your daughter live on campus, buy this (http://www.zillow.com/homedetails/1313-Lincoln-St-APT-401-Eugene-OR-97401/48455873_zpid/) 2-bedroom condo for $135,000. A 25% down payment would be $33,750, with a balance of $101,250. For 30 years at 4.5% interest, your monthly P&I would be $513 per month. Property taxes and insurance will run you another $200 per month for a total expense of $713/month. Put your daughter in one of the bedrooms, and rent the other bedroom to her friend for $4000 per semester (still cheaper than if she lives in the dorms, and this way she gets a full kitchen). Charge an additional $1000 for the summer months. Take the $14,589 credit balance from the PLUS loan and the $9000 from the roommate ($23,859) to cover the annual mortgage/taxes/insurance costs of the condo ($8556) and to pay down the principal on the mortgage. Repeat for the next three years: borrowing the full PLUS loan, using it to pay for your daughter’s tuition, and using the credit balance to pay down the principal of the mortgage, and using the income from the roommate to cover the annual costs of the mortgage. 
The real estate market in Eugene has appreciated 5.1% in the past year, and is expected to do at least that this year. If the market appreciates 5% per year, when your daughter graduates, you can sell the condo for $164093. At that time, you will have paid the principal down by $7027 in monthly mortgages payments (essentially paid by the roommate), and will have collected $58356 in PLUS loan credit balance checks. If you’ve used those checks to pay down the mortgage principal, you now only owe $35,896 on the property. When you sell it for $164,093, you’ll get a check for $118,351 ($164,093 minus the 6% real estate agent commission minus the $35,896 to pay off the mortgage). Use that check to pay off your PLUS loans and use the rest to take your family on a vacation to celebrate your daughter’s graduation! 
You may only use your PLUS loan for your kid’s educationally related expenses – which include tuition, fees, room and board. As long as you are only using the funds for these purposes, you’re good to go.