<p>If anyone has good information on the peer-to-peer lending model I would be very interested, regarding a relative giving/loaning money for college. Virgin Money used to provide this service effectively, but I believe they no longer have a U.S. presence.</p>
<p>Is there any reason that the generous relative can’t make the check payable to the college directly?</p>
<p>*The IRS really frowns on family loans </p>
<p>=====================================================</p>
<p>I doubt that the IRS even knows about 99.999999% of family loans that go on across this country. I’ve never reported to the IRS any money that I’ve lent to family members (interest free, of course)…and I bet few do. </p>
<p>===========================================</p>
<p>Its fraud. I dont know how many people make loans over 10,000. But if you do charge or impute interest on it, its fraud.*</p>
<p>Oh please. Do you have any idea of how many parents lend their kids large amounts to buy cars, etc, and the “pay back” is interest free? I doubt these families are going to be charged with “fraud” by the IRS. Besides…the IRS wouldn’t even know about it.</p>
<p>finaid.org says that gifts to the parents are not included (at least for FAFSA - CSS Profile is not discussed):</p>
<p>
[FinAid</a> | Parents | Budget Cutting](<a href=“http://www.finaid.org/parents/budgetcutting.phtml]FinAid”>http://www.finaid.org/parents/budgetcutting.phtml)</p>
<p>
</p>
<p>All other things being equal, this would be fine. However, as we’re discussing above, this would need to be included as a “money received or paid on the student’s behalf” on the following year’s FAFSA, and that would increase the student’s EFC.</p>
<p>finaid.org is a little out of date in some areas, so someone should probably check the current law to make sure it hasn’t been revised. If the current law is as stated below, then giving the $10K to the mom would seem to be the right move after all.</p>
<p>If you do this as a gift to the parent, just make sure you’ve spent it all by the time you fill out the FAFSA, otherwise you will have to report it (or whatever is still unspent) as an asset.</p>
<p>I don’t think money gifted to the parents is reportable on the FAFSA. It seems clear to me from the instructions and from the context of the form where they specifically omit that question. Cptofthehouse has a different perspective, but from everything I have seen and that a logical person would infer, gifts to the parents are not reportable. Even though the question about “money received” by parents is grayed-out, if a person really wants to report it, I suppose they could include it on one of the other lines, but that seems to require a dedication to reporting something that the form is specifically telling you that you do not need to report. To each his/her own!</p>
<p>I suppose there are those who might see that as a self-serving nuance, but certainly no more so than a fake loan.</p>
<p>Thank to all for the thoughtful input. </p>
<p>I have one piece of solid information that I found today by actually calling the IRS. The recipient of a gift does not have to declare it as income. The agent referred me to this publication which can be found at this link:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p525.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p525.pdf</a></p>
<p>2010 PUB 525. Page 34 reads in part: </p>
<p>“Gifts and inheritances.
Generally, property you receive as a gift , bequest, or inheritance is not included in your income. However, if property
you receive this way later produces income
such as interest, dividends, or rents, that
income is taxable to you.”</p>
<p>So that resolves my first concern; that I would have to report the gift as income and pay taxes on it. I will not.</p>
<p>As for reporting the gift on FAFSA, If, as is indicated by the article on FinAid.org, gifts made to the parents by friends and relatives do not affect need based aid, then I am good to go!</p>
<p>From the FinAid.org article:
[FinAid</a> | Professional Judgment | Cash Support from the Student’s Parents<a href=“As%20a%20result,%20a%20student’s%20grandparents,%20other%20relatives%20and%20friends%20can%20give%20money%20to%20the%20student’s%20parents%20to%20help%20pay%20for%20the%20student’s%20education%20without%20affecting%20the%20student’s%20eligibility%20for%20need-based%20financial%20aid.”>/url</a></p>
<p>The FinAid article refers to this document, which I found.
2010-11 Application and Verification
(see the full text at this link:)
<a href=“http://www.ifap.ed.gov/fsahandbook/attachments/1011AVG.pdf[/url]”>www.ifap.ed.gov/fsahandbook/attachments/1011AVG.pdf](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</a>
(Page AVG 22)
j. Money received (45 only). The student reports any cash support he has received … Note that this item does not appear in the parents question (93)only the student reports this information.</p>
<p>I think the question is resolved?</p>
<p>Personally, I think having your relative just gift the money to you (the parent) is the most straightforward and honest way of doing it. Setting up a faux loan seems much dicier to me.</p>
<p>I have a similar situation: two relatives each offering to contribute $2500 to D’s first year of college (and hopefully to the three subsequent years, though I don’t want to count on it/commit them to that).</p>
<p>What I’d really love to do with this $ is reduce my daughter’s eventual student-loan debt. Her FA package includes the full $5500 in Stafford loans. Does it make more sense to forgo part of that, and pay out-of-pocket with the relatives’ gift? Or can we accept the Stafford loans, and then have the relatives pay them off? (Are parties besides the student permitted to make payments on those loans? And how soon can you pay down/pay off the unsub loan? Is there a minimum amount of interest-accruing time you have to let pass?)</p>
<p>If her loans are unsubsidized, I would just use the gifts (to you) the first year and forego taking out the loan – why accrue any interest if you don’t have to? Also, if the relatives paid off the loan directly or indirectly, I think you’d have to list that on your D’s FAFSA the following year as “bills paid on behalf of student”, which could affect her aid for the following year.</p>
<p>^^^^
But if relatives gift the money to the parents and the parents pay the money to the school instead of taking the loan all is good?</p>
<p>^^^^
As long as they put it on D’s FAFSA the following year.</p>
<p>MisterK, parents do not need to report money gifts to them on the FAFSA. Money gifts to the student are reported on the FAFSA.</p>
<p>So, yes, if the parents receive money as a gift to them to use as they wish, and then they choose to use that money to pay for their child’s college costs instead of having their child take out a loan… all is good.</p>
<p>Thanks everyone for the explanations. There’s so much to learn in this process (I thought the intensity would let up once D was accepted somewhere, and well, I guess it has for her. Not for me, though.) and I really appreciate the resource of the CC community.</p>
<p>Hi ‘rentof2 - But the gift is actually for a contribution to the kids’ school, right? If it was truly a gift for them to use however they like, then for sure, there would be no reason to report it. But if it was a gift to pay for school, shouldn’t it be reported as “bills paid on behalf of student”? Or are you just saying that in practice, there would be no way to catch them?</p>
<p>If they paid it directly to the school, it would be a “bill paid on behalf of student”.</p>
<p>If given to the parent, the parent can use it any way they want. The parent could keep it and screw over the kid, if they wanted. </p>
<p>Parent money used to pay the kid’s bill is not counted as “bills paid on behalf of student”.</p>
<p>MisterK, I’m just saying that these are the rules. It doesn’t have to do with getting caught or not getting caught, it’s just the way the rules are written.</p>
<p>Obviously, all expenses shared between kids and parents are highly fluid. It makes the whole process kind of a silly exercise.</p>
<p>That’s it in a nutshell, notrichenough!</p>