Sending a student off to college is a team effort: your child’s success is a result of their own hard work, but they’ve received help along the way from teachers, parents, counselors, and extended family members. This help comes in the form of emotional support, tutoring, financial assistance and more. With the price of higher education as it is, it can be a real boon to a student’s college experience if extended family members are willing to chip in.

When family members are planning on helping with the cost of college, it’s important to consider how their help might impact any need-based grants for which the student is eligible or has already received. Any “gifts” received by the student or the parent must be reported as untaxed income on The Free Application for Federal Student Aid (FAFSA).  Help from other family members is considered a “gift” to the student and will reduce overall aid eligibility by 50% of the gift.  Any “gifts” received by the student or the parent must be reported as untaxed income on The Free Application for Federal Student Aid (FAFSA).  Help from other family members is considered a “gift” to the student and will reduce overall aid eligibility by 50% of the gift.

Grandparents may want to open a 529 College Savings Plan for their grandchild. These funds grow in a tax-deferred account to pay for IRS-defined “Qualified Higher Education Expenses. However, the current formula behind the FAFSA that determines aid eligibility penalizes distributions from 529 accounts that are owned outside a student’s primary family. So, in most cases, it’s better for grandparents to either open 529 plans in the parent’s name or to use the funds for other expenses. The FAFSA and the EFC formula will be changing for the Class of 2023, and we expect that it will be much less punitive with regards to financial assistance from family members.  After these changes are instituted, it will be easier for grandparents and other loved ones outside of a student’s immediate family to help pay for college and not disrupt student aid eligibility.

In the meantime, grandparents may wish to contribute to the application process itself by hiring a private college adviser for their grandchild. Think of it as an investment up front—with the help of a professional adviser, their grandchildren gain an advantage from the very start of the college search. College planning programs like Strategies For College offer help to alleviate the stress and confusion of the application process for the students and offer financial advice appropriate for each family’s unique situation. Strategies For College strives to match students’ interests and strengths with programming and environments where they will thrive, without sacrificing family cash flow and retirement. A careful college search and the guidance of a college adviser often leads to a more fulfilling college experience and the best financial choices for the family. 

Going forward, families should also consider the upcoming changes to the FAFSA program, which should make it easier for grandparents and other loved ones outside of a student’s immediate family to pay for college.