Help From Family

FAMILY MEMBERS—especially grandparents—often chip in to help with college costs. If your children are eligible for financial aid, you should discuss the best way to give this financial assistance.

For instance, while folks might ordinarily limit their generosity to the annual gift-tax exclusion, there’s no cap imposed on financial help with education costs, as long as the money is sent directly to the educational institution. Problem is, if the grandparents or others do this, it can result in a dollar-for-dollar reduction in financial aid.

Instead, family members might gift the money to the parents, who can then use it to pay college costs. Alternatively, family members might help with college costs after the final financial aid application is filed or they could assist the student with paying off education loans after graduation.

Family members might also contribute to a 529 plan that the parents set up. This avoids the financial aid problems that can arise with 529s set up by grandparents and other family members, though it also means giving up control of the money.

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