In the typical lease-option agreement, the tenant pays a monthly rent that is more than the fair market rent of the property, with the excess amount being credited towards the buyers eventual down payment.

Me personally, I would lean toward assuming the additional risk for the potential reward associated with REI when weighed against using excess cash to pay off student loans at what I presume are relatively low rates, especially when adjusted for tax deductions (if you receive the deduction for student loan interest anyway). 

I even had an appraiser once note in a report the sellers purchase price two years prior and the excessive profit sought in the asking price.

Depending on the banks appetite for loans, overall balance sheet, recent history or losses with investors, these things can change throughout the year.

Any Rent or other economic consideration realized by Tenant under any sublease and assignment, in excess of the Rent payable hereunder and reasonable subletting and assignment costs, shall be divided and paid seventy-five percent (75%) to Landlord and twenty-five percent (25%) to Tenant.

and select the one with the best reputation with a reasonable price (not always the lowest).Rather than spend your capital, consider to do a HELOC or cash-out refinance to fund your rehab and put any excess plus your own capital into additional properties if you want to do more of this.

Its going to be much more interesting and will whet his appetite into wanting to put it into practice.

The language and limitations very from "no resale within 60 days" to "no resale in excess of 120% of purchase price within 120 days" or similar restrictions. 

After a property held as collateral is sold, the lender is not entitled to excess proceeds and a private note holder needs to only to show the price was reasonable for the market, individuals may not be required to list or auction collateral.

@Xin Z. depends on your goals and appetite for risk.