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Hi,
I'm a grandpa hoping to help a grandchild pay for college, since no one else in the family is able.

My hope is to help the kid, who did great in High School, get all the aid she is eligible for, and then make up the difference. She is already enrolled in a hometown University, and starts this fall.

Another objective is to find links to other sites pertaining to the subject. I'm sure there's a right and a wrong way to go about this, and I want to do it right.

I've read that it is not wise for a grandparent to pay college bills directly, or through the grandchild, but that the bills should be paid by the parents. It would be all the same to me, but why is this? Would a payment from someone other than a parent reveal another source of support that the college would want to consider in their aid evaluation?

Thanks in advance for your suggestions.

Fred
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I've read that it is not wise for a grandparent to pay college bills directly, or through the grandchild, but that the bills should be paid by the parents. It would be all the same to me, but why is this? Would a payment from someone other than a parent reveal another source of support that the college would want to consider in their aid evaluation?

I've read best way is to pay the college directly - because of potential gift tax.
ex:
http://www.bostonglobe.com/business/2013/04/13/helping-your-...

If you're really concerned about whether it'd be considered in their aid evaluation, call up the aid office for your grandkid's university and ask them that. They'll know the answer to that (but may not know answers to questions about tax implications)

BTW - I recommend she get a part time job. There was a study not too long ago that showed a part time job actually helped students do better. (IIRC theory was it helped with their time management skills)
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Hi, and thanks for the reply.

BTW - I recommend she get a part time job. There was a study not too long ago that showed a part time job actually helped students do better. (IIRC theory was it helped with their time management skills)

I agree with you completely, and so does my grand daughter. But if her meager earnings are going to reduce the amount of aid she might be eligible for, it might not be worth it (except for the experience, of course).

She is meeting with the aid counselors at the U soon, and I will post what she finds out about the aid/work question.

Thanks again, The Boston Globe link was very helpful.
Fred
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But if her meager earnings are going to reduce the amount of aid she might be eligible for, it might not be worth it

If it only reduces the loans she's eligible for, it's still worth it IMO.

And if every $10 she earns reduces her aid by $5, I think it's also still worth it.
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But if her meager earnings are going to reduce the amount of aid she might be eligible for, it might not be worth it

There seems to be an implied assumption here that the aid she will receive will be in the form of grants. Most likely, it will be in the form of loans. Even if she gets a combination, any reduction in the aid due to her earnings will generally come off of the loans.
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Thanks folks, those are good points.

Here's a quote from a Forbes newsletter about paying for college...

Advice to grandparents: Hang on to your dough until the beneficiary has been awarded aid and gets the term bill. Then send a check to the parents.

Unfortunately, there wasn't anything else in the article pertaining to my situation, so I don't know why the check should go to the parents as opposed to the student or straight to the school. Any thoughts?

Fred
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Unfortunately, there wasn't anything else in the article pertaining to my situation, so I don't know why the check should go to the parents as opposed to the student or straight to the school. Any thoughts?

email the article's author and ask why they recommend that instead of paying the college directly.
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Unfortunately, there wasn't anything else in the article pertaining to my situation, so I don't know why the check should go to the parents as opposed to the student or straight to the school. Any thoughts?

Don't know why you would send the $$ to the parents. Depending on dollar amount, you can avoid gift taxes by paying the college directly. If the college set up is anything like the school Eldest goes to, the student can authorize access for you to make direct payments on their behalf.

IP
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Good idea. I found the original article and entered an online comment, then sent a query to William Baldwin, the author and Forbes columnist through the Forbes readers service. I'll post his response if and when it is received.

Many thanks,
F
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I was not able to get through to Mr Baldwin, but I found another article by him that expands on the topic. Here's a partial copy:

"Paying for College: Help from Grandparents
By William Baldwin, Forbes Magazine 2/28/2013

Thinking of helping out a grandson or granddaughter? Structure your gift so that it doesn’t mess up the student’s financial aid.

If a grandparent, uncle or aunt sends money to the student to help pay for tuition, the gift will show up in the following year’s financial aid application as “untaxed income.” That income will be assessed at a rate of roughly 50%. If you give $1,000, the college will snatch $500.
This untoward result also occurs when the generous relative sends the money directly to the college billing office.

Making the gift well in advance of college doesn’t entirely solve the problem. Savings held by a student get assessed at a rate of 20% to 25% per year. So if the kid has an extra $1,000 set aside before applying for aid, his aid will come out $200 to $250 lower.

Making the gift to the student’s parents is smarter, but still, the timing has to be right. If the parents have the money in hand when the aid application is submitted, it gets counted as a parental asset and is assessed 5% to 5.6%.

There are two ways for a grandparent to be generous to a current college student without having a gift snatched by the college.

Method I: Wait until the aid has been determined and the family gets a bill, then send money to the parents. Also, don’t send more than a year’s worth of help at a time.

Method II: Wait until the student has graduated, then make a gift to the student to help pay off college loans."

Sounds like good advice, so I'm going with both Method I and II.

Fred
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I don't understand why the easiest thing isn't to just pay the college directly. If you do that, then the assets are never counted against the financial aid because they don't belong to the student or the parents. In addition, you are not subject to the gift tax rules limitations.

Is there a reason you're not just sending the money to the college to pay the bill directly? I don't understand why the need for the gyrations to give the money to the parents during some short window so that it doesn't count as their asset, and assuring that they spend it on college. That just adds another level of complexity to me that I would not want to deal with.
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covan: "I was not able to get through to Mr Baldwin, but I found another article by him that expands on the topic. Here's a partial copy:

"Paying for College: Help from Grandparents
By William Baldwin, Forbes Magazine 2/28/2013

Thinking of helping out a grandson or granddaughter? Structure your gift so that it doesn’t mess up the student’s financial aid.

If a grandparent, uncle or aunt sends money to the student to help pay for tuition, the gift will show up in the following year’s financial aid application as “untaxed income.” "


I call B.S.! Show up where? It will not be on the student's income tax return. Ans assuming that it was spent in the year received, and not on hand when the FAFSA form was completed (as noted in the further comment about money given to the parents), it will not be reported as an asset either.

"That income will be assessed at a rate of roughly 50%. If you give $1,000, the college will snatch $500."

Gifts are not income.

"This untoward result also occurs when the generous relative sends the money directly to the college billing office."

No citation for this statement. The money could be sent without indicating that it came from someone other then the student or a parent.

I doubt the accuracy of the advice, especially as a general statement.

Regards, JAFO
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I call B.S.! Show up where?
It looks like it should be reported as untaxed income on the FAFSA.
http://www.finaid.org/parents/grandparents.phtml (section "Giving directly to the college")

Gifts are not income.
From income tax perspective - yes.
From FAFSA perspective, maybe it is counted as income.
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I suggest you skip the pop magazine stuff and thoroughly check out these sites :
http://www.savingforcollege.com/
http://fairmark.com/
http://www.finaid.org/

but paying the college directly is the way to go, IMHO, with the scenario you have described.
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JAFO, have you filled out a FAFSA lately? They do ask about gifts from grandparents and others and they do count untaxed income. As a parent of a current university student, I find the advice given - to give to the parents, or better, to offer to pay off the loans later - to be spot on. Personally, I would tell the student to take out loans, if they finish with a degree, I would pay them off, or agree to pay a certain amount. If they don't finish, they are on their own for the debt. But the way FAFSA has it currently set up, giving them help while they are in college just saves the system money. I'm not against that, but having the student graduate without a crushing debt load is better.
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They do ask about gifts from grandparents and others and they do count untaxed income. As a parent of a current university student, I find the advice given - to give to the parents, or better, to offer to pay off the loans later - to be spot on. Personally, I would tell the student to take out loans, if they finish with a degree, I would pay them off, or agree to pay a certain amount. If they don't finish, they are on their own for the debt. But the way FAFSA has it currently set up, giving them help while they are in college just saves the system money. I'm not against that, but having the student graduate without a crushing debt load is better.

And so this is another reason for the grandparents to pay the college directly. It is not reported on the FAFSA because it was not a gift to the student or the parents.

In reading the discussion, though, I am left wondering if people are thinking that the financial aid received will be grants when in reality, the vast majority of financial aid is loans. And a good portion of those loans are not subsidized, so interest accrues from Day 1. Given that, I'd much prefer to see the number of loans reduced before they start to accrue interest, and if having the grandparents' funds counted reduces those loans, I don't see that as a bad thing since it will save the student all that interest money.

I just finished paying for twins to go to college, so my experience is relatively recent.
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paying the college directly is the way to go, IMHO, with the scenario you have described.
Based on the article I found on finaid.org - I disagree that it's the best option.
It *might* still work out well enough - for example if there is a lot of loans in the aid package, a gift may just reduce the amount of loans by 50% of the gift (ex. Grandpa pays $10K of the tuition, $5k less in loans is available the next year)
I'd talk to someone from the financial aid office of the campus - but maybe wait a little bit to do that - as I'm sure they're busy right now with the start of school.
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It is not reported on the FAFSA because it was not a gift to the student or the parents.


I would bet that the feds would disagree - that they consider it a gift to the student.
It certainly looks like a gift to me. The only thing different about it is that when it comes time to look at gift taxes it isn't counted by the IRS for that.
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In reading the discussion, though, I am left wondering if people are thinking that the financial aid received will be grants when in reality, the vast majority of financial aid is loans. And a good portion of those loans are not subsidized, so interest accrues from Day 1.

I had assumed folks were talking about getting grants and such. Under those circumstances you would want the student to be as impoverished as possible (to get the most grant money). However, you do make an excellent point that if people are talking about loans then one must factor in the interest of those loans and the fact that all that money has to be repaid. In that case I would prefer to tap our home equity credit line and pay for college from that. It's still a loan, and the interest is tax-deductible (unlike most loans).
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I had assumed folks were talking about getting grants and such. Under those circumstances you would want the student to be as impoverished as possible (to get the most grant money). However, you do make an excellent point that if people are talking about loans then one must factor in the interest of those loans and the fact that all that money has to be repaid. In that case I would prefer to tap our home equity credit line and pay for college from that. It's still a loan, and the interest is tax-deductible (unlike most loans).

My experience has been that people talking about financial aid haven't been through the process yet or in quite a while and tend to think that "financial aid" translates to all grants. It doesn't seem to occur to them that short of being absolutely broke with no income or assets, financial aid comes in the form of loans, and most of those are unsubsidized, so increasing financial aid tends to come in the form of loans. As someone previously pointed out, that can leave the student with some back-breaking debt when they finally leave school.
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As someone previously pointed out, that can leave the student with some back-breaking debt when they finally leave school.

Yes, it could. And that can be really stifling.

The only way 1poorkid is going to a hyper-expensive college is if she gets scholarships to do so. I can't do $20K per semester. Wish I could, but I can't. In-state we can handle without any long-term loans. Credit line will be more than adequate. Anything in between I guess we'll just have to see.

1poorguy (just now barely entering into the process)
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My experience has been that people talking about financial aid haven't been through the process yet or in quite a while and tend to think that "financial aid" translates to all grants.

Mine,too. The EFC calculator at finaid.org is a useful tool. I know the theory behind the net price calculators at the college sites but haven't used those.

For anyone looking a colleges with kids, keep in mind that the merit aid(scholarship) process can be on an entirely different schedule than need-based aid. Look carefully at the college site and the particular major department as well. The ROTC scholarship review starts even earlier.

Also, it's a really good idea to have a discussion with your kid as early as possible about what you are and aren't willing to do. Beginning of ninth grade is not a bad time. If you have money invested in less safe things, this is also a time to begin the move to safer ground.
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No. IT has been awhile, but I do not remember any untaxed income questions when I did.

Regards, JAFO
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Beginning of ninth grade is not a bad time. If you have money invested in less safe things, this is also a time to begin the move to safer ground.

Ain't that the truth.

I had the kids' college money in stocks from when I started saving just before they were born, but moved it to cash in 9th and 10th grades, which happened to be 2006-2007. I'm sure folks remember what happened in 2008. I watched people who had enough money invested to put 3 kids through college lose so much because it stayed in the market through 2009 (when the kids graduated high school) that they could only barely afford to put the first child through college.

Yes, you might miss some upside, but risking the downside when you need the money to pay for college is much worse in my opinion.

Move to cash starting in 9th grade and be sure you can afford what you had planned for the kids.
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Granddaughter reports that the U. says that part-time job or work/study income does not reduce aid eligibility. I hope she got that right...
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She didn't - college work/study is usually part of the award package.
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My G'daughter just got her aid package. In addition to a $1,000 scholarship she already had, she got a Pell Grant for $5,600 and is eligible for a subsidized loan of $3,500. She is also eligible for an un-subsidized loan of $2,000, and Parent Plus loans of about $10,000. I advised her to decline the latter two - the terms and interest rates are not that attractive.

There was nothing in the aid package about work/study programs; she says she can't apply until school starts in a couple of weeks.
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It doesn't seem to occur to them that short of being absolutely broke with no income or assets, financial aid comes in the form of loans, and most of those are unsubsidized, so increasing financial aid tends to come in the form of loans.

The only thing being impoverished changes is that it is more in subsidized loans than unsubsidized. :P (and the option of work/study - but the student has to find a work study job on their own, and they make the offer for work-study to way more students than there are job openings)

Ishtar
(C just started - luckily in CA where she gets a waiver for all state fees since I'm a disabled vet)
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