The cost of attending college these days is astronomical. A student attending an in-state, four-year, public university in Texas or Arkansas can expect to pay an average of $120,000 or more to get a Bachelor’s degree. Private and out-of-state colleges can be triple that amount! It is a tremendous gift as a grandparent to be able to help a grandchild achieve the dream of going to college, but if you’re not careful about how you help, you could do more harm than good.
Don’t Forget About Financial Aid
There are many federal, state, and school-based resources for “free money” for college based on the student’s financial need. To apply for these scholarships and grants, the student must fill out the Free Application for Federal Student Aid (FAFSA) to disclose any money in their name. Ways that you might be considering helping your grandchildren that would affect their ability to get their own free money include:
- Starting a 529 account. While this is a tax-efficient way to save for college, if you open an account and name your grandchild as the beneficiary, he will have to report it on his FAFSA, which could prevent him from getting a need-based grant or scholarship. Additionally, 529 accounts can only be used tax-free for education expenses, so if your grandchild does not go to college, the benefits of the account will be lost.
- Giving them money directly. Any money a college student has received in the previous two years—even a gift from a grandparent—will have to be reported as income on the FAFSA and could disqualify him from “free” money.
Don’t let these restrictions discourage you from helping your grandchildren pay for college. There are ways to plan for their college costs without jeopardizing his access to grants and scholarships.
What You Can Do to Help
Some options for adding to your grandchild’s funds for college include:
- Paying for the last two years. Because the FAFSA looks at the previous two years, you can hold off and contribute towards the third and fourth years of college, and your grandchild would not have to report that as income.
- Paying off their loans. If your grandchild took out student loans to pay tuition, you could help him pay off those loans, rather than lending him the money directly.
- Setting up the right kind of Trust. As a tool to designate money to certain people for certain purposes after your death, you can’t beat a Trust. However, you should work with an experienced professional to create the right kind of flexible Trust to support your grandchild in a variety of situations in addition to college.
It’s also important to remember that if you can’t afford to help your grandchild with college tuition—don’t. Taking out a federal Parent PLUS loan or overextending yourself to help them just puts your own future in jeopardy.
Are You Looking for an Estate Planning Attorney in Texarkana, TX?
If you are looking for estate planning advice, you need to speak with an experienced estate planning attorney as soon as possible. Contact us online or call our Texarkana office directly at 903.223.5653. We also have offices in Tyler, Paris, Longview as well as Magnolia, AR!