Ever since I became a grandparent, I have been trying to help my kids in every way I can to make life easier for all of them. My kids do OK as far as making a living is concerned, but the costs of raising children these days are astronomical. True they have money for food and clothing and all the necessities in life, but there is precious little left over for anything extra like summer camp, participating in sports, or taking music lessons.
One of the biggest expenses my kids face is sending the grand kids to college. They will need assistance. So I have been asking myself, how can grandparents help pay for college? I of course wanted to research how I could help, and I also wanted to share what I have learned about how grandparents can help in this vital cause. Here is what I have learned.
529 College Savings Plans
There is something you can do today to start saving money for your grandchildren’s college fund. That’s to start a 529 College Savings plan. Contributions to these accounts are tax-deductible. There are fees associated with initiating these accounts, so be sure to read the plan in full before taking out a 529 plan.
There are two types of 529 college savings plans: Prepaid Tuition Plans, and Educational Savings Plans.
Prepaid Tuition Plans:
- These plans pay directly to the institution in which your grandchild will be attending
- You can bypass the gift tax rules by paying directly to the institution
- They can’t be used for room and board
- They can’t be used for elementary or secondary education
- They often have residency requirements for the saver and the student.
- Funds may or may not be guaranteed by the government, and therefore run the risk of being lost if the market loses value.
- You run the risk of the grandchild NOT attending the institution you are paying toward, in which case you may be refunded as little as 60% of the funds you paid in.
Education Savings Plans:
- These plans are an investment strategy you can initiate with your financial planner or retirement fund broker.
- They can be used at any accredited US college or university, and even some non-US institutions.
- They can be used for tuition, fees, and room and board.
- They are generally guaranteed by the FDIC if taken through a bank.
- You can use up to $10,000 per year to fund elementary and secondary school for the student.
Oh, and by the way, CollegeInvest, the Colorado state 529 college savings plan, has an annual Grandparents Scholarship promotion where they give away 10 $2,500 college savings plans to Colorado grandparents, which luckily, I am one of.
Take Out Student Loans on the Grandchild’s Behalf
I thought about doing this, but then found out that I can’t.
Grandparents are not eligible to borrow from the Federal Parent PLUS loan program unless they have formally adopted the grandchild. A legal guardianship is not sufficient.
Grandparents can, however, cosign private student loans on behalf of their grandchildren. Yet they should be cautious about cosigning on any loans, as this makes them just as responsible for repaying the loan as the student borrower. The lenders use fairly minimal credit underwriting standards for cosigners, such as a minimal threshold on annual income. They do not currently use debt-to-income ratios. This means that a grandparent on fixed income might end up obligated on private student loans for amounts that are far greater than what they can afford to repay. If the student defaults on the loan, or is even a month delinquent, the lender can seek repayment from the cosigner. This may put the grandparents in a difficult financial situation.
However, if this is the only way a grandchild can get the money for collage they need, it has worked for some. As a parent, I took out some parental student loans for one of my kids. She sometimes did not qualify for a loan on her own. Then we agreed that we would pay the loan payments until she got on her feet. She then took over the payments, and I am happy to say that the loan is paid off.
But I am aware that not everyone has the same relationship with their children and grandchildren that we do, and grandparents can be left holding the bag when it comes to loan repayment.
Give Directly to the Educational Institution
Many personal finance and tax experts recommend giving money directly to the college to avoid gift taxes. This is bad advice for most families because it hurts eligibility for need-based financial aid. It should only be considered if the family does not qualify for need-based financial aid and the annual gift tax exclusion is insufficient.
Besides, I am all about allowing children to decide where they want to go to college. I would not give directly to an institution for my grandchildren, because I have no idea whether they want to attend that school or not, or even if they want to go to college at all, and I would not be so presumptuous as to think my grandchildren would want to go to a school I chose for them. Chances are, you would not get that money back if your grandchild disagrees with your college choice anyway.
Free Application for Federal Student Aid (FAFSA)
Ah the FAFSA. During my children’s college experience, I dreaded the darn FAFSA. This is a form you fill out that determines your child’s eligibility to apply for college grants or financial aid. I hated the form because it was due long before I could get my taxes done, due in March, so there was always pressure to get the taxes done beforehand. And my kids never qualified for financial aid anyway. We made too much money; not enough to pay for college, but too much to receive aid
The results of our FAFSA were always “an invitation to take out a student loan on our child’s behalf” which we couldn’t afford either but there were years that we had little choice but to do so. Most of the years, our child qualified on her own to get student loans, but we often had trouble finding a co-signer, because as a small business owner, I often couldn’t qualify. It was really a major pain that I’m glad we are past.
We were lucky that one of our children went to one of the five military academies, and much of her expenses were paid for by the government. However, we were on our own with the other kid. We came up with most of the money ourselves, and she worked and saved a lot herself. We had only two student loans to pay off, which she has done now at age 31.
This is why I’m trying to be prepared for my grandchildren’s college monetary needs. I don’t want to be caught by surprise when we get to that point.
Gift Tax Rules
- A grandparent can give up to $14,000 a year to a child or grandchild without paying gift tax. That’s according to IRS guidelines on gift exclusions. Grandparents who are married and file jointly can give up to $28,000.
- Grandparents can make payments directly to the educational institution to avoid gift taxes. The IRS allows a person to make direct payments to a medical and educational institution without it being counted as a “gift.”
- A tax-advantaged 529 account is one way for grandparents to save and pay for college.
If You Are Poor, How Do You Raise the Money?
You can always set expectations with your children and grandchildren that you will not be helping with college, and that’s just the way it is. I was told this by my own parents about my own college education, as well as my kids’ tuition, and it broke my heart. This is not acceptable. When it was time for my kids to go to school, we didn’t have any money, but I DID NOT tell them I could not help them. I told my kids, “where there’s a will, there’s a way” and we managed to pull it off, albeit with a lot of sacrifice and poor choices on both our parts. I don’t want this for my grand kids.
That’s where affiliate marketing comes in. I needed a way to help my kids provide for the grandchildren, put money away fro their respective educations, and to be able to retire as well, with plenty of money put aside to visit as often as we all want to. Affiliate marketing seemed like the best choice.
I can work now to build up my content base while I’m working at a “real” job that pays the bills for now. Once my content is ranking on Google, Yahoo, and Bing, it will be drawing traffic to my websites, and people will be visiting my affiliate partners and buying from them, paying me commissions. This should be earning me a pretty good secondary income by the time I am ready to retire, right about the time my first grandchild will be getting ready for college. It will take some work and sacrifice, but it will be SO worth it!
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Conclusion
The best advice I can give a grandparent for helping your grand kids with their education, is to plan plan plan! Look into your options and do something now to get ready for that day when you can give your grandchildren OPTIONS. It is the best gift you can give a kid, the option to decide on their future, rather to be stuck in a future they don’t want. Do it now for your kids and grand kids!
Please enter your comments and questions below, and thank you for reading!
References:
https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html
https://www.dywealth.com/resources/blog/safe-ways-grandparents-help-college-costs
Hello Rhonda! These tips have been super helpful. I didn’t know that grandparents can’t borrow from the Federal Parent PLUS loan program unless they have formally adopted the grandchild. Thank you for all these options you have mentioned. Raising money for grand kids through affiliate marketing sounds interesting. Besides helping our grandchildren pay for collage, they’ll also have a cool online grandma!
Hi Henry! Thank you for your comments! Yes, I thought I would be able to help by getting student loans in my name for my grandkids, and until I wrote the article, I didn’t know I couldn’t. But researching this article gave me a few other options. And yes, I think that affiliate marketing is the best way to go…for me anyway, to raise the extra cash we will need to help with all those expenses my grandkids are going to rack up. Thanks again for visiting my site, and thanks for commenting! Rhonda
This is a great article explaining different ways that grandparents can help their kids with college. I am also a firm believer in encouraging and motivating kids to do well in school so that they can become anything they want to be. My son was able to get some awesome scholarships that covered the majority of his expenses because of his hard work, dedication and determination to get a college degree. (I’m still super proud of him.)
Again, thank for the great suggestions and list of options.
Sondra, thank you for commenting. I, like you, can’t be proud enough of my kids and what they have accomplished. I think it was worth every sacrifice we made. I have one with a bachelor’s degree, and one with a masters degree. I am so happy that I did what I did to help put them through school, and I hope to keep that tradition going with my grandsons. I just hope it’s not such a hard challenge this time around! Thanks for sharing about your son, you proud mama! Thanks again for reading and commenting! Rhonda
Rhonda great article it was very informative. I always like learning useful information about a subject when I read an article. I loved it when the author shares their personal story; my focus doubles once I start reading a personal account. It has a way of making an article more real, more relevant not to mention more believable. Again thanks Rhonda for a lovely post.
Thank you John for reading and commenting. The main reason for my website is that I have had personal experience what I’m blogging, or that I want to learn more about what concerns me and my family . So, it’s hard for me not to interject my own personal story. We had a heck of a time with the FAFSA and student loans, and I know from watching the news that there is a student loan crisis in this country. I am hoping that my insights can help just one person. If I accomplish that, my website is a success. I love what I’m doing, and it’s always great to hear that my story has touched someone. Thanks again for visiting my website! Rhonda