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From the Tax Strategies board, if one wants to help pay a niece or nephew's college expenses, in order to avoid the risk of hitting the $13k/yr gift limit, one should pay the college directly. Another poster asked the follow-up question:

...he is going to be applying for scholarship help and/or loans, presumably on the basis that his parents don't earn a lot and have scant savings. Won't it be weird (or even trigger some red flags) if he gets financial assistance from the school and then his other expenses are paid for by a third party (like us)?...

I have the same question. My niece's family has neither savings nor extra income, and I am considering helping bridge the difference between her scholarships and the actual college costs. But if her scholarships get reduced by the amount of my contribution, that would defeat the purpose, wouldn't it?

My 1st thought was that only her immediate family's assets and income would count; however, financial aid forms do ask for disclosure of any outside grants received. For example, if a student's high school gives its graduating seniors scholarship money as awards for most hours volunteered, good sportsmanship, academics, etc., that would count. So it's unclear how help from grandparents (or other relatives not legally responsible) would be counted. As other poster said, if you pay the college directly, they would certainly know about it.

So: how do payments by aunts/uncles/grandparents to a college affect the scholarships or other aid for which the student is eligible?
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