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How Grandparents Can Help Pay for Their Grandchild's Education

By Eric Hamilton , Mar 14, 2020 04:53 PM EDT
(Photo : How Grandparents Can Help Pay for Their Grandchild’s Education)

In response to the ever-increasing cost of college education, many grandparents are looking for ways to help their grandchildren. They want to do their part to help their grandchildren get a good start in life. The following are a few tools that grandparents can use to help their grandchildren pay for their education.

Directly Pay for the Tuition

Grandparents can choose to pay some or all of their grandchildren's tuition costs. In most cases, this money will not be subject to the gift tax. This means that grandparents could contribute a large amount of money to their grandchildren's education without taxation consequences. It should be noted that this applies to the tuition. It would not cover things like the cost of room and board, study supplies, or books.

If the grandchildren qualify for financial aid, receiving a direct payment from a grandparent toward their tuition could be seen as non-taxed student income. This could reduce the financial aid eligibility of the child by 50 percent. If the grandparents are not able to cover the complete cost of the tuition and if the child is eligible for financial aid, parents and grandparents should carefully weigh whether or not directly paying for the tuition is a good idea.

Scholarships for Military Service of a Grandparent

Most scholarships awarded for military service are restricted to the immediate dependents of a parent who served in the military. However, there are a couple of awards that can benefit grandchildren. One example is the David Abby Veteran Scholarship at the University of Baltimore. They created this scholarship to help the grandchildren of individuals who fought in the Vietnam War. Grandparents who are interested in learning more about this topic should consult the American Legion.

Pay off Student Loans Once a Grandchild Graduates

There are a couple of benefits to this option. First, when a grandparent pays off their grandchild's student loans once they have graduated, this does not jeopardize the grandchild's ability to qualify for financial aid. Second, if a grandchild knows that as long as they graduate their tuition is paid for, this may serve as an incentive to complete their education.

The IRS will consider loan payments as gifts if they exceed the annual exclusion amount. It is unlikely that a one time payment under the annual exclusion amount would be enough to cover the expense of one year's tuition, room and board, and fees. A grandparent who is committed to paying off a grandchild's student loans after graduation would need to commit themselves to a process that will probably take several years.

How Grandparents Can Provide Assistance When Emergencies Arise

Not all grandparents are in a financial position to completely cover their grandchild's tuition. Still, they are interested in seeing that their grandchild's time in college is as trouble-free as possible. Unforeseen emergencies may arise where the student needs cash instantly to handle an unexpected emergency, such as medical bills from a hospital visit. In these circumstances, online loans might be a short-term financing option if they don't have the savings on hand. Grandparents should only use this option when savings fall short and something unexpected happens that requires immediate financial help.

Scholarships for Ethnicity or Ancestry

While this is not something that only grandparents can do for their grandchildren, there are several scholarships available that are based on a person's heritage. For example, the Order of Sons of Italy in America requires that recipients have at least one grandparent who is Italian or Italian-American. There are also scholarships for Native Americans that are managed by the US Bureau of Indian Affairs.

Grandparents may opt to save money in the name of their grandchild as soon as a grandchild is born. This could include setting up a savings account, contributing to a college savings plan, investing in an IRA, or taking other steps.

College continues to be an important tool in finding sustainable employment. College costs continue to rise. Grandparents who want to help their grandchildren afford college have several viable options available to them.

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