By Jo Ikelheimer, MA, RHM, Director of LIHTC Compliance
At this time of year, a lot of us think about students – especially if we have school-aged children, or we follow college football. I actually think (and write and talk) about students year-round, but from an affordable housing regulatory perspective.
Most affordable housing programs now have student eligibility restrictions; most have regulatory guidance that deals with student income; and there are a lot of housing practitioners who often confuse the two. If you fall into this category, then this article is for you.
The Low Income Housing Tax Credit program has always had student restrictions as part of its eligibility criteria. The basic premise is that a household consisting entirely of full-time students will be ineligible for occupancy at a tax credit property unless it meets one or more of the five exceptions to the rule, which generally make allowances for non-traditional student households. HUD project-based programs, along with the HOME program and Rural Development programs, also have student eligibility restrictions that differ from those applicable to LIHTC. If you have subsidy-layering, or blending of these programs at a single property, then you will need to make sure that all applicable student eligibility requirements are met before student income is even considered. Keeping this in mind should help keep the requirements for the two separated in your thoughts about them. Think: Student eligibility comes first!
On the income side of things, there are two issues addressed in HUD Handbook 4350.3 REV-1 that we have to be mindful of relating to student income. The first is where HUD directs that only the first $480 of employment income for dependent full-time students age 18 or older be counted. This is really an issue that has more relevance for HUD programs where a dependent allowance, or deduction, of $480 would then be taken to reduce the family’s Annual Household Income by the same amount counted for the student. Since the tax credit and HOME regulations do not include allowances for adjusted income calculations like the HUD programs and RD do, then we simply count $480 for those programs and leave it at that.
The other income issue for students that causes even more confusion is whether or not to count student financial assistance as income. In Paragraph 5-6E, Educational Scholarships or Grants, on page 5-11 in the 4350.3, owners/agents are directed to subtract tuition from financial aid and count whatever is remaining as income for the Section 8 program (with two exceptions). For all other HUD programs covered by the Handbook, no student financial assistance is counted. The IRS has clarified that at LIHTC properties, the only time you would use the Section 8 formula for student aid is when the tenants are also receiving Section 8 assistance. Otherwise, student financial aid should be excluded from income. (Neither HOME or RD specifically address this issue in their guidance, so my advice would be to check with your Participating Jurisdiction (PJ) for HOME or your state or local field office for RD to get their advice on how you should handle it for those programs.)
The bottom line is, again, that student eligibility comes before student income issues are addressed. I certainly hope this helps clarify the matter and enables you to keep all of your ducks on the same page!