<p>My daughter's grandfather is going to help pay her college costs. He has set up a tax-deductible account for this purpose, and he needs to pay the school directly in order to receive tax benefits.</p>
<p>I am concerned that my daughter's college will reduce next year's financial aid package once they see that he is covering some costs. No one at FAFSA or the school's financial aid office will give me a clear answer on whether there is a way to structure his financial help in a way that will maintain her current level of financial aid. I've asked a CPA for advice about the best strategy, but he is not knowledgeable about college financial aid policies.</p>
<p>Has anyone had experience with this situation?</p>
<p>Use the account from your daughter’s grandfather to pay the last year’s education expenses, then you don’t have to worry about financial aid forms anymore.</p>
<p>Oh, I see what 4kidsdad means - use grandfather’s money for senior year only.</p>
<p>But if the OP is counting on using this money as a resource all four years, that won’t help. And money paid to the student’s school account during 2013 (for example) will show up on the 2014 FAFSA as money paid by someone else for the student’s benefit. So it will count as income.</p>
<p>Grandparent money is tricky . . . but it’s also been much discussed on this forum, so perhaps someone has some ideas.</p>
<p>Don’t mean to sound harsh (I’ve been on your side of these kind of posts and have received the same advice), but if GF is able to pay for college, then your DD doesn’t need as much FA. FA is for people who don’t have enough other resources to cover college costs.</p>
<p>Having him hold his asset and pay for 2nd semester junior year (after Jan 1) and senior year expenses is one way to handle this. </p>
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<p>Depending on what kind of account it is, this may or may not be true. But even if he can take the payment himself and then pay the school (eg, 529 account), this will need to be reported to the school the next year.</p>
<p>My parents made a contribution towards college costs every year and paid directly to the school. S1 had no need-based aid, so obviously it didn’t impact his FA package; S1 just turned down the Stafford loans offered each year. Merit based aid came through unaffected.</p>
<p>For S2 my parents contributed the same $20k for his first 2 years. Again, they paid directly to the school. At both colleges, we were able to set up a separate invoice notification and separate accounts to make payments; so GP paid their contribution and then we would look at the balance of the account and pay the balance. At S2’s school this arrangement did not impact need-based aid, and I’m only guessing that that was because our FAFSA EFC was about $30k and the school did not meet full need. I imagine that this will vary by school, so there may be no way to know the impact until sophomore year when the past year’s contribution has been reported.</p>
<p>Here’s a caution: even though my parents had verbally committed to make this contribution for all 4 grandchildren, when my father finally retired at age 78 and had their financial adviser review their situation, the contribution stopped. We had counted on receiving the $20k for the final two years of S2’s education and it was a huge shock to suddenly need to come up with the entire cost. We would probably have pointed S2 to a different school, had we known at the time because of our own financial situation. So if you can somehow confirm the expected contribution, I would highly recommend it.</p>
<p>It sounds like we’ll need to move forward with the grandparent contribution being paid directly to the school and then see what happens to our financial aid package next year. If dodgersmom could point me towards other discussions about grandparent contributions on this forum, I’d appreciate it.</p>
<p>Regardless of whether or not the grandparent contribution is paid directly to the school, there will be an impact on the aid for the year after the year in which the contribution is made. It is required that any money paid by anyone else to the student (or to the school on the student’s behalf) be reported on the FAFSA the following year. This is why you are being encouraged to wait until senior year until you take money from the grandparents. Otherwise, you do run the risk of having aid reduced.</p>
<p>outlawdesign - What you’ll need to do is search the financial aid forum for threads with the word “grandparent” in the title. </p>
<p>So, go to the main page for the financial aid forum, and click on “search this forum.” Then click on “advanced search.” That will take you to the search page, where you’ll have the option of searching either entire posts or titles only. Enter your search term (“grandparent”), click on title, and start your search.</p>
<p>I just tried it and came up with two pages of results. Many focus on grandparent-owned 529 accounts, but the issue is usually the same - how to get the money into the student’s hands to pay college expenses without it impacting financial aid.</p>
<p>It might be most beneficial to transfer part of the account to you, and have you pay it as part of your parental contribution. Don’t make the transfer until the FinAid award is issued. </p>
<p>If your kid or you can take out loans to pay year-by-year, you could use the grandparents’ money to pay them off after junior year. (Of course you would need to be sure that the money would be there.)</p>
<p>529 owned by a parent has ‘minimal’ impact because it is counted as a parent asset, so assessed at 5.6% or whatever the exact number is. Withdrawals are simply part of a parent paying for college. We did a 529 transfer, and I don’t recall that specifically counting as income.</p>
<p>529 owned by a grandparent does not have to be reported on FAFSA (possibly on PROFILE) but like several previous posters have said, the year after funds are withdrawn you have to list money paid by others on the student’s behalf. Thus the suggestions to use it in later years to minimize impact on future aid.</p>
<p>oldmom, if the money is in a tax advantaged college fund, it is very doubtful it could be used to pay off loans</p>
<p>Money paid by grandparents to the student or college is reported as student nontax income on the following year’s FAFSA. It doesn’t matter what the source of the funds is.</p>
<p>Some states have rules regarding 529 accounts which do not allow retitling the funds to a different name, from a grandparent to a parent, for example. Any non-qualified withdrawals from the grandparent 529 would be subject to penalties and taxes on the gains.</p>
<p>Grandparent-owned 529s are not reported on FAFSA but any 529s for which the student is a beneficiary, including grandparent-owned, are reported on Profile. </p>
<p>In theory the funds could be used to pay off loans, but if the money is withdrawn in a calendar year other than when the bill was paid by the loan, it would be considered a non-qualified expense subject to tax & penalty.</p>
<p>oldmom: If the grandparent’s money is in a 529, my understanding is that 529 withdrawals cannot be used to pay off student loans (without incurring applicable penalties).</p>
If this is a FAFSA school, the GF can gift the money to the OP and her H each year. There is no place on the FAFSA to report gift income. OP and H can then use the money any way they like, as it were. There is no tax penalty to the grandparents as long as the amount is within whatever the current limit is per year ($14K/person maybe?)
And the EFC decreed by FAFSA is often unrealistic for a student’s family. Not to mention that many/most schools don’t meet full need and the student is left with a gap.</p>
<p>How about this: Grandparents give a gift to the Parents. Parents “direct” the payment of the gift to the school to pay tuition. Thus, Grandparents can show the money going directly to the school, but does not show up as a gift to the student (parent’s controlled the gift).</p>
<p>You can’t have it all If Grandpa wants the tax deduction, then he has to do things a certain way. If it you want the financial aid too, Grandpa either gifts the money to the parents or lends the money to the student and backs it up with paperwork and a market interest rate that should be duly paid. The loan can be forgiven after first term junior year and the next three terms paid directly to the school with the tax benefits, a little bit of everything. Grandpa’s will should include provisions for these commited amounts and forgiveness of loans, in case needed.</p>
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