Micah Hollingsworth TheGuarantors quote. Text reads: “Student rental income coverage can help leasing teams approve more students, save significant time on administrative tasks and minimize financial risk for every bed in their property.” — Micah Hollingsworth, Director of Student Housing, TheGuarantors

Minimize Risk, Maximize Access: The Rise of Lease Guarantees in Student Housing

by Sarah Daniels

The student housing industry comes with a unique set of challenges that traditional multifamily operators don’t face.

From renting to a demographic that has largely enjoyed rent-free living under mom and dad’s roof, to navigating the complexities of parental guarantors and financial aid, to grappling with no-shows and skips, student housing operators must carefully manage risks that can jeopardize occupancy and rental income. Solutions like lease guarantees are rapidly gaining traction in this market, offering a win-win approach that protects operators while expanding housing access for students.

For most students, signing their first lease is uncharted territory. Explaining lease terms can be a time-consuming process for leasing teams. While parents typically co-sign student leases, financial hardships like job loss can put rent payments at risk, as vividly seen during the COVID-19 pandemic. This necessitates constant communication between owners and personal guarantors to resolve issues.

Additional complexities arise when leasing to international students, student athletes on scholarships or those receiving financial aid, who often can’t secure a personal co-signer. Operators aim to make housing accessible for all students but lack simple guarantor solutions in such cases.

Further challenges include no-shows who fail to arrive on move-in day, forcing operators to over-lease or scramble to fill vacant beds. At the other end of the school year, some students depart early — skipping out on final rent payments and exposing operators to income losses and the arduous task of chasing personal guarantors for payment.

“Dealing with these problems is a headache for operators,” says Micah Hollingsworth, director of Student Housing at TheGuarantors, which offers lease guarantees, deposit replacements, renters insurance, master policy and compliance solutions to owners and operators. “Our student rental income coverage can help leasing teams approve more students, save significant time on administrative tasks and minimize financial risk for every bed in their property.”

Lease guarantees insure owners and operators against defaults, skips, no-shows and other risks, taking the place of personal guarantors. Hollingsworth notes lease guarantees are relatively new, but adoption is growing rapidly in student housing. TheGuarantors, founded in 2015, has secured over $3.5 billion in rent and deposits nationwide. The company guarantees a student renter about once every 10 minutes.

A Good Fit

Overall, the student housing asset class is performing well. Pre-leasing trends were more than 10 percent ahead of the average from 2019 to 2022, according to a report by Yardi Matrix released at the end of March. The average rent per bed increased by 5.2 percent year-over-year, well ahead of the general multifamily sector.

Despite these positive trends, the aforementioned challenges of the student housing business can offer an unusual array of headaches for owners and operators. The pool of potential renters is young, so many students have a limited credit history and rely on parental guarantors. Many student renters are unaware of rental obligations or back out of paying rent in difficult circumstances.

“Lease guarantees are particularly well suited to the student housing business,” says Hollingsworth. “They create a win-win situation. Access for students and peace of mind for student housing operators.”

TheGuarantors also offers renters insurance and master tenant liability policies. “Our core focus with our student product is to provide our student housing partners with comprehensive property-wide protection,” says Hollingsworth, who has a deep background in the space. 

Building Confidence for Owners, Operators and Students

If a student doesn’t show up, defaults, damages a unit or skips out early, TheGuarantors steps in to cover those losses. At the same time, a lease guarantee provides the ability for a student renter to move into an apartment home of their choice that they or their guarantor may not have otherwise qualified for — creating a safety net for the student who has the peace of mind that the rent will be paid.  

Drawing on her deep student housing experience, Hollingsworth can attest to the importance that every student lease signed is guaranteed before the start of the academic year.  “Ensuring guaranteed leases not only secures occupancy but also minimizes the need for re-leasing efforts, allowing for a smoother and more efficient leasing process,” she says.   

Lease guarantees are especially helpful for international students, members of athletic teams and students on financial aid or scholarships, notes Hollingsworth. While many U.S. students are able to secure a parental guarantor easily, but it’s less likely that these other groups will be able to do so. TheGuarantors acts as the student’s professional third-party guarantor, minimizing the operator’s risk in approving them. “We deliver real value,” says Hollingsworth.

Reliable Deposit Coverage

A relatively recent trend worth watching is the move by student housing operators away from collecting upfront security deposits. Hollingsworth says that while this shift away from collecting large deposits benefits students, it introduces increased risk for operators.

However, with services like security deposit replacements — instead of paying a large, upfront cash security deposit to the operator — the student pays a non-refundable fee to purchase deposit coverage from a partner like TheGuarantors. The cost is less than the traditional cash deposit — an important benefit for students, who may struggle to pay heftier financial outlays. Operators, meanwhile, often receive greater financial protection than they otherwise would and reduce their financial exposure if student renters cause damage to their units.

“Owners and operators can think of us as an extended arm of their team,” says Hollingsworth. “We’re partners.”

TheGuarantors offers multilingual customer support seven days a week in six languages and employs a dedicated in-house team that proactively contacts delinquent students to help them resolve their payment issues and get back on track. “We reduce the work of the site teams,” says Hollingsworth. She adds that operators can customize coverage of individual properties based on their needs.

The Future of Better Partnerships

A frequently asked question is how students are screened to qualify for a lease guarantee. TheGuarantors uses an AI-based underwriting model built from over 2,000 variables that can predict the likelihood of renter default with 89 percent accuracy.

Operators are seeing good results. B.HOM Student Living partners with TheGuarantors to increase access and reduce move-in costs for students while increasing its own risk protection. The partnership has helped B.HOM secure more than $13 million of its rent roll, without any increase in operating expenses. “A service like TheGuarantors can truly make a difference and let student housing operators focus on what’s most important,” says Hollingsworth.

— By Jane Adler. This article was written in conjunction with TheGuarantors, a content partner of Student Housing Business.

Learn more about TheGuarantors here.

For more information on becoming a Student Housing Business content partner, contact Jill Dickstein.

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