Grandparents who wish to help pay for grandchildren’s college education should avoid making gifts to the grandchild until after the grandchild is finished with college. The grandparent could gift the money to the grandchild after the grandchild finished college and the grandchild could then use the money to pay the student loans acquired during the college years. As an alternative, the grandparent could also loan the money to the grandchild during college years and then make the gift after college years.

Specific Details

Gifts from grandparents can create a financial aid asset, or worse, a  financial aid resource. If the child’s gift is assessed as a resource at 50%, the gift will increase the child’s financial aid eligibility by $2,500 ($5,000 x 50%). If the child’s gift is assessed as an asset at 20%, the gift will increase the child’s financial aid eligibility by $1,000 ($5,000 x 20%).

So the family timed the cash gifts from the grandparents until graduation, and then used the money to pay off student loans. This allowed the child’s financial aid eligibility to increase by $3,500 ($5,000 x 20%).

Potential Savings

If the student is in a financial aid income assessment rate of 50%, you could increase your financial aid eligibility up to $500 for every $1,000 of income reduction by timing cash gifts from grandparents. If the student is in a financial aid asset assessment rate of 20%, you could increase your financial aid eligibility up to $200 for every $1,000 of asset reduction by timing cash gifts from grandparents.