The question of where to live during college is an important one. It's a decision that also involves a lot of money. Schools can charge thousands of dollars for room and board, and living off-campus can also be just as costly—especially if you're going to school in a big city. However, there are some financial pros and cons to living in a dorm, and knowing what they are can make it easier to decide where to live.

Key Takeaways

  • Scholarships, grants, and student loans often cover on-campus housing, but may not be used for off-campus housing expenses.
  • A 529 plan can be used to pay for on-campus room and board if it's paid directly to your school.
  • Many dorm programs cover the cost of food and eliminate extra expenses like utilities, cable, and internet.
  • You will have to move out of housing and may face extra costs if you withdraw from school before the end of the semester.

Funding

First of all: Are your expenses being paid by any scholarships, grants, or student loans? These funds can often cover on-campus housing because the money is directed straight to the school. However, in some cases, students may not be able to use funding from these sources to pay off-campus rent.

If you're the beneficiary of a 529 plan, there are a few things you need to know before you use the funds for your room and board. You can use money in a 529 plan for your accommodations—on- and off-campus—as long as you meet certain criteria. If you intend to live in a dorm at school, the funds count as a qualified expense if you pay the school directly for the cost of housing. This means room and board must be part of the expenses you incur from your school when any federal financial aid is calculated.

But what about off-campus housing? You can still use your 529 plan as long as the rent you pay to your landlord doesn't go beyond whatever the school budgets for its on-campus housing. Whatever costs exceed this amount are considered nonqualified distributions and are subject to taxes. 

Off-campus housing accommodations cannot exceed on-campus housing expenses in order for a 529 withdrawal to count as a qualified distribution.

The Pros of Living on Campus

While off-campus rents may be cheaper than the price of room and board at school in certain cases, rent rarely provides the range of services that a school offers. Living in a dorm eliminates electricity, gas, and water bills, and sometimes even cable and internet bills. At most schools, the price students pay also covers food—three hot meals a day. Also, unlike apartments, dorms don't require a security deposit.

Another cost that living on campus eliminates is buying furniture. Every dorm room comes with at least a bed and a desk. Most residence halls also offer common areas with couches, televisions, and other comforts of home.

The potential cost of having a roommate also decreases when a student lives on campus. If a student leaves mid-semester, the roommate doesn't need to worry about covering the full cost of rent or utilities. Schools also handle a certain amount of roommate matching, eliminating the hassle of advertising for roommates, and covering full costs until you find one who is suitable.

One benefit of living on campus can be especially financially significant: The cost of a car. If a student chooses to do without a car entirely, most colleges and universities are perfect for pedestrian transportation. Students who live within walking distance of their classes also don't have to pay for pricey campus parking permits. Even dorm-dwellers who keep a car save on costs because they don't need to drive to school every day.

Pros
  • On-campus housing is all-inclusive, such as meals

  • Dorm rooms are furnished

  • A student's dorm cost won't rise if roommate drops out

  • Save the cost of a car, including insurance and gas

Cons
  • Off-campus housing can be cheaper in smaller communities

  • Expensive meal plans; students pay for food they don't eat

  • Dorm fees for infractions

  • Financial penalties for students who drop out

The Cons of Living on Campus

Many schools promote their room-and-board offerings as cheaper alternatives to their off-campus counterparts. This may or may not be true, depending on the geographic area: The cost-of-living in college towns can often be quite pricey. But even in expensive areas, thrifty students may be able to live off-campus for less—especially if they can bunk with family or friends.

Meal plans are an obvious area of inflation: Few students eat as often as their meal plans provide for. Also, many cafeterias offer only limited options for healthy eating, religious restrictions, and special-needs diets which, for some students, could mean regular trips to the grocery store despite the meal plan.

Dorm dwellers can face a whole list of fees for infractions like noise complaints or damages that may be considered fairly minor issues when living off-campus.

If a student must withdraw from school part-way through the semester, they could face significant penalties for breaking the housing contract with the school, or at least, lose a lot more money. Even if the student plans to come back the next semester, they will need to move out of campus housing immediately.

The Bottom Line

There are, of course, considerations other than finances. Living away from the school does cut one off from the campus social life and social networking possibilities—a key part of the college experience for many students. A lot of students may not be mature enough to handle living completely on their own for the first time with the responsibilities of rent, household expenses, and other financial considerations. It's for this reason that some universities require on-campus residency, especially for freshmen.

But if the school does offer the option, and finances are a concern, it's worth researching both the region and various plans to come up with the most feasible arrangement, both fiscally and emotionally.