Inter-Generational Sharing
The Baby Boomer generation -- aged 55 to 69 -- is sitting on huge assets accumulated through the go-go years of the economy. Sometimes college students are lucky enough to have Boomer grandparents who wish to cover some of their bills. What is the best way for these grandparents to help without jeopardizing other sources of financial aid?
It should be said, first off, that if the family makes a high enough income, this isn't an issue; merit scholarships will not be affected one way or the other. But when the student hopes to receive need-based aid, timing is very important. Any outright gift, whether paid to the student or to the college, will count as student income and will be heavily assessed (50%) in the next year's financial aid cycle.
It is crucial to note, however, that December 31 of sophomore year marks the end of the period when income, savings and investments must be reported for financial aid purposes. The easiest tactic, therefore, is simply to wait to give the student money until at least the spring of his or her sophomore year. At that time, the grandparents can cover tuition, room, board, fees, new computers or travel expenses without financial aid consequences. They can even pay back parental or student loans, although they may not use 529 funds to do this.
Another method, if the money is needed before spring of sophomore year, would be for grandparents to contribute to the parents' 529 account. This contribution would be reported on the financial aid forms (FAFSA and CSS/PROFILE), but would be assessed at a low parental rate of just 5%. This tactic could help avoid the need for either the parent or the student to take out loans.
As with many things in college admissions, planning is important! I'd love to work with you to consider all aspects of the process. Just click the button at the bottom of the page for a free consultation, or call me at 847-660-8625.
