I'm ready to ask some tough questions from those of you who have BTDT

[Janice in NJ]

deleted

Edited January 10, 2013 by Janice in NJ

[Paintedlady]

I have no idea b/c my kids are still younger, but I really love your humor! :smilielol5:

[Janice in NJ]

Thanks. Do I get any money for that? Cause it looks like we just need money. :001_smile:

 

Peace,

Janice

[In The Great White North]

Is this approximately how this works?

 

1. Son gets accepted to a college that costs $30 K for tuition and $12 K for Room & board, books, etc. So we're looking at $42,000 per year.

 

2. He does really well (OK - thinking best case scenario here. Smile at me and try to hope with me. OK? :001_smile:) and receives a $12 K per year merit award.

 

3. Our EFC estimate says that we can afford to pay $25,000 of his college costs per year. (Wow! I had NO idea that we could survive in NJ on so little per year. Someone must be embezzling from us. Who would have thought? I should invite those folks to come over and stare sternly at our budget. Cause I've stared at it in disgust myself....repeatedly; I must be missing something. :001_smile:)

 

Anyway.

 

Assuming that they possess a wisdom that has eluded me....

 

That means:

 

College Costs $42

Merit Aid - $12

Parent stop spending so much money on chewing gum so they contribute - $25

College makes up the extra $5

 

The boy heads off to learn something intelligent.

Does that look about right? Ballpark?

 

NOW......

 

Let's assume that the boy just barely makes into into said university. No merit. They're not even sure that he is eligible to clean the toilets, but they have an empty slot in the back of the room, so they agree to let him sit there. ;)

 

1. College needs $42

2. Parents handle the gum-obsession so they can contribute $25

3. College still manages to come up with $17 from their we-have-no-idea-why-we-are-letting-him-in fund....

 

 

We're still in the process but my impression is this:

 

1. College costs $42,000

2. EFC is $25,000

3. Work study/merit aid/ loans etc. totals $10,000

4. Parents are expected to stop eating/drinking/breathing in order to cough up the $7,000 difference between the already absurd EFC and the work study/merit aid/ loans and then cover the extra $5,000 in misc. expenses.

[creekland]

I'm not as BTDT as many of the parents on this board, but since we've got a senior heading off to school next year, I can share what we know...

 

A) Merit aid means the school wants you - the more they want you, the more the merit aid. Look for schools where your youngun is in the top 25% of students to have a decent chance at this, BUT don't look at schools where your youngun is SO over the top that they aren't going to be challenged. You might get an almost free education, but it isn't likely to be of the same caliber plus your youngun is likely to be bored.

 

Since the school wants you, they generally do all they can to assist with all parts above the EFC. Not all schools can make up the entire difference. IF what the school offers goes down into the EFC, none of that can be federal aid. Federal aid dictates that ONLY the amount above and beyond the EFC can be subsidized. Schools can do what they want as they have means.

 

We were also warned that if a student were to win an MGM scholarship (My Grand Mother) or similar, make sure grammy gives that money to the STUDENT and not directly to the college. If it goes to the college, they have to count it as a scholarship and might have to reduce federal aid. If given to the student, it can count toward EFC amounts.

 

B) If the college doesn't really want you there, don't expect a lot of assistance on their part. They do not have to come up with the "need" amount (even for good students). They may, or may not, offer much. You still qualify for subsidized loans, but even those have limits for low interest.

 

C) As for the EFC, this amount remains the same regardless of which college you choose to go to - local state U or big name private. Merit aid gives aid "need-blind." You could owe it all and still get a break. Need-based gives federal (and college) options colleges (or parents) can use to assist with everything above the EFC (below if it's college/private assistance only). Beware that there's a big difference between loans and grants. The total offered might be the same, but one needs to be paid back and the other doesn't.

 

For both types, some colleges can give a lot, others can give very little - and, of course, it varies as stated above based on how much they want you. You can't count on only paying the EFC. You might have to give up more than gum.

[Nan in Mass]

Parents hope children are going to go to college, know it will be expensive, and copy neighbors' somehow-we're-not-very-good-at-saving college saving plan, which consists of paying extra on the mortgage and hoping for a confluence of events: that the mortgage will be paid off about when the first student goes to college and that the tuition will be about the same as the mortgage payments and that the students won't overlap and that nobody graduates late. First student doesn't go to college until second student finds an interesting one junior year and talks the first into going with him. First student applies and is accepted.

Parents don't even bother applying for financial aid because it is hopeless. They take all savings and pay for first year. Student gets a job working Sunday afternoon and evening and one other evening. This pays for pencils and laundry and snacks. Almost. Second son applies for college (same college) and is accepted. Now there are two tuitions, so it is worth applying for financial aid. First student receives a small government loan and college sends paperwork for private loans, lets the first keep his job, suggests that the first change his state of residence so he can get instate tuition, and suggests that paying the tuition monthly for second might be preferably. First student knows that he has messed up his parents' carefully planned child spacing and takes out large loans, moves off campus, cancels his meal plan and gets a fishing license, continues to work, and hopes that his summer coop will pay well. Everyone hopes this rather precarious situation will continue to be possible and everyone graduates on time so there will be no more overlap. Everyone also knows that the youngest is going to have loans because he wants to go to a college whose tuition payments are going to be much more than the non-existant mortgage payment. Everyone also firmly feels that it is better to go into debt and just do this than not. All three students have chosen college degrees that lead to professions that will hopefully pay enough that it will be possible, painful but possible, to pay off those loans, and the parents will probably be able to help because the father is quite sure he will have to keep working forever and will not be able to retire because he is self-employed and not exactly putting money away for retirement.

 

Not exactly ideal, but working. So far.

 

-Nan

Edited February 2, 2010 by Nan in Mass

[creekland]

Another scenario... parents have raised their kids knowing they shall go to college, but incorrectly assume it will be the very nice big state U that mom and dad went to and loved (first big mistake). They save and invest where everything should work out well - being very proud of themselves in the process (second mistake - bigger than the first, undoubtedly - the proud part, that is).

 

Then, oldest decides he wants a major big U doesn't offer, and that he prefers small. College visitations don't change anything. Wait, yes they did. Younger two siblings decide they also want small private... Oldest convinces parents that he's right about where to go based on what he wants to do.

 

Economy crashes. Investments crash and are difficult to liquify. Income goes down by a not so nice percentage. Bills don't change. Suddenly, hey, what's the name of that Financial Aid Form? Looky here, we qualify! And that EFC isn't quite so attainable.

 

Plan B... Spouse not working full time decides to try to go full time. Spouse working full time crunches the numbers and finds out if spouse #2 works full time, the bulk of the earnings go to taxes and increasing the EFC. Very little goes to assisting with college, esp after expenses. We might actually be spending more to go this route, not gaining. Axe plan B.

 

Plan C... Investigate what is offered in Merit and Need... and couple that with college options. Send praises to the Almighty that we put the emphasis we did on getting good test scores and extra curriculars (besides the knowledge and experience involved). Double efforts for the two younger siblings remembering they want small and private (at this point). Plan to work forever after college graduations are complete as retirement funds aren't much better than college funding was.

 

To be continued...

[Brenda in MA]

Assuming that they possess a wisdom that has eluded me....

 

That means:

 

College Costs $42

Merit Aid - $12

Parent stop spending so much money on chewing gum so they contribute - $25

College makes up the extra $5

 

The boy heads off to learn something intelligent.

Does that look about right? Ballpark?

 

Janice,

 

Yes, I think you have this about right. Only thing is that the "extra" $5K the college makes up will most certainly be in the form of a Stafford Loan in the student's name. Freshman are currently eligible to borrow a max of $5500, Sophomores $6500, Jrs & Srs $7500 per year, so the college will suggest these loans (and possibly work study) before offering any gift aid.

 

NOW......

 

Let's assume that the boy just barely makes into into said university. No merit. They're not even sure that he is eligible to clean the toilets, but they have an empty slot in the back of the room, so they agree to let him sit there. ;)

 

1. College needs $42

2. Parents handle the gum-obsession so they can contribute $25

3. College still manages to come up with $17 from their we-have-no-idea-why-we-are-letting-him-in fund....

 

Is THAT how it works? Is the merit aid thing a smoke-screen? Do we still just have to beg/borrow/steal the $25 anyway? Is that it in a nutshell?

 

In this scenario, most colleges would "gap" the student. In other words, they would offer the student less than $17K in total aid. He might get offered the $5500 stafford loan, $3K work study, possibly a small grant for a couple K, and then a Parent PLUS loan for the rest. So if he went there, you'd have to come up with the $25K EFC plus the additional gap amount.

 

There are a few tippy top schools that promise to meet need without loans or cap loans, but these are the ones like Harvard that have an admission rate under 10%. Other top schools will promise to meet "need" and not "gap" students, but these are also few and far between.

 

The good news is that you are researching and planning for the process now. At least you know what you and your student will be up against.

 

Best wishes,

Brenda

[TravelingChris]

Yes, you have to remember that many colleges will expect parents to borrow amounts above the EFC but between the aid the give and the cost.

 

I have BtDT. I will attest to how a small income raise skyrockets your EFC. I think that for many people who didn't save enough - and considering how the price of tuition has exceeded inflation for the past fifteen years and the stock market and real estate market tanked- who has, the new reality is paying for state college tuitions.

[mcconnellboys]

Sigh...... I'm where you are right now. I'm mega bummed to think that we either have to give up all our life savings and work until we're 95 1/2 in order to support ourselves AND see our two children through school,

 

OR

 

we have to allow them to be saddled with what I consider an incredible amount of debt once they graduate from college (even if it only takes four years and there are no grad degrees in their futures - which I doubt). We're trying to live reasonably and pull back from debt. But we're going to teach our children that it's normal to saddle oneself with the same amount of debt as a home mortgage before one is even really an adult?????

 

I hardly know what to do right now......

[Gwen in VA]

Janice,

 

I felt robbed when I realized that a generous (but not full) scholarship could just mean that your child receives the merit aid instead of a fin aid grant. Period. Big deal. The kid still gets the loans, and the parents still go broke.

 

The only way to avoid the possibility of the scholarship merely replacing a fin aid grant is to get a full tuition (preferably full ride) scholarship.

 

But since those kinds of scholarships don't grow on trees, I would suggest giving up that gum-chewing habit. :tongue_smilie:

[Jane in NC]

To add insult to injury...

 

Tuition is rising dramatically at public universities. Story here.

 

Williams College throws in the towel on its previous plan to replace loans with scholarships so that students graduate debt free. More here.

[Poke Salad Annie]

We have been very blessed to have had two children go through college with only a very minimal expenditure for anything. We have actually only paid for room and board for one semester, as child #2 has an honors-based scholarship which covers tuition. This child also lived at home while attending a local community college for the first two years before transferring . Child #1 has been on a full ride to a state university, and we have been more than thrilled for this opportunity to come her way. She has studied abroad with her honors school---all expenses paid (well, except for food and fru fru expenses).

 

Child #1 did not want to attend an in-state university. This child was very adamant about attending a very nice but expensive school on the east coast. Mom and dad said okay, but said the child must figure out how to pay for what was not covered after merit-based scholarship (to the fancy east coast school). Of course, the child was very upset, but came to her senses later and accepted full ride to in-state school. Four years later, this child is very happy with this decision, and owes nothing for loans.

 

I am only writing this as I wonder if there could be another option to the school in question for your child. It is not always a popular choice to take what seems to be "less" in the child's eyes as far as the education they hope to get at a school of their dreams. It was not a popular choice of school for my daughter's classmates, but in the long run, it has been more than what she hoped for. Are there other merit-based scholarships that your child is eligible for? If you and your child are open to exploring all avenues, then I wholeheartedly suggest to look under every stone, for every dollar that is available. There could just be something somewhere that will help with the tremendous outlay of funds required for a college education, and that will relieve more of the stress on you.

Edited February 2, 2010 by Poke Salad Annie

[Mommyfaithe]

Another scenario:

 

Student sees and understands parents can not come upo with EFC...and goes to Community college while working to pay the tuition.

Student gets straight A's while "discovering" themselves and finding out what they really want to do for 3,000 a year rather than 36,000 a year.

 

Student applies to dream schools as well as OK...I could be happy here schools.

 

Student receives nice big TRANSFER package (yes...scholarships are available to transfer students)

 

Student gets work study, stafford loads, perkins loans and any other kind of loan to get them through the next 2 - 3 years (depending on how much time they blew discovering themselves @ CC for a much discounted rate.)

 

Student graduates and because they have learned to work in their feild prior to graduation, they land a really good job before they walk that aisle.

 

 

So far, this has been our scenario.....both girls received great transfer scholarshiops and work(ed) in their fields during their schooling.

 

Ds is now at the CC...and working in his field (alternative energy..dh is a HVAC tech....)

 

The difference in expense....

 

152,000 vs. 80,000...less scholarhips dd's 4 year BA from her school of choice cost $15,000.

 

DD #2 will probably cost a little more since she needs at least 1 extra semester. She is planning on taking extra courses at the CC to fill in gaps and pay much less for transferrable classes she needs to fulfill her degree requirements.

 

HTH,

Faithe

[Janice in NJ]

Thanks for the advice. Ds is only a junior. We haven't even applied yet. I'm just trying to understand this EFC/merit process. Dh and I both started out at SUNY schools. Dh graduated and is enjoying a very exciting career. I transferred and graduated from an ivy; I spend my days parenting with a bit of educating around the edges. So yes, we know that there is nothing magical about an expensive private school. But thanks for the encouraging word! :001_smile:

 

Peace,

Janice

[Poke Salad Annie]

Another scenario:

 

Student sees and understands parents can not come upo with EFC...and goes to Community college while working to pay the tuition.

Student gets straight A's while "discovering" themselves and finding out what they really want to do for 3,000 a year rather than 36,000 a year.

 

Student applies to dream schools as well as OK...I could be happy here schools.

 

Student receives nice big TRANSFER package (yes...scholarships are available to transfer students)

 

Student gets work study, stafford loads, perkins loans and any other kind of loan to get them through the next 2 - 3 years (depending on how much time they blew discovering themselves @ CC for a much discounted rate.)

 

Student graduates and because they have learned to work in their feild prior to graduation, they land a really good job before they walk that aisle.

 

 

So far, this has been our scenario.....both girls received great transfer scholarshiops and work(ed) in their fields during their schooling.

 

Ds is now at the CC...and working in his field (alternative energy..dh is a HVAC tech....)

 

The difference in expense....

 

152,000 vs. 80,000...less scholarhips dd's 4 year BA from her school of choice cost $15,000.

 

DD #2 will probably cost a little more since she needs at least 1 extra semester. She is planning on taking extra courses at the CC to fill in gaps and pay much less for transferrable classes she needs to fulfill her degree requirements.

 

HTH,

Faithe

 

:iagree: This worked very well for child #2.

 

I hope I haven't written anything offensive. I just wanted to say that there are ways to arrive at the same destination, though they may be side roads that are a bit less traveled, KWIM? I probably should have stayed away from the college boards this morning, but I read this thread and thought I would post about my experience. I spent many nights lying awake worrying about how we could pay for two children to attend college, especially the type of school that child #1 felt drawn to. I probably ate antacids for two years with all the worrrying I was doing. In the end, it was all taken care of, and four years later, I am in awe of how it all has transpired.

 

Again, I didn't mean to offend by my writing about dream schools. It was very hard for my whole family when the decision was made (by my daughter, not us) to attend where the full ride was offered. There was much weeping, wailing and gnashing of teeth, so to speak. We all have survived through it all, and my daughter has grown up and found that she is happy with the decision she made.

[Janice in NJ]

Oh. I hope that you didn't apologize on my account. No offense taken here; I appreciate and thank you for sharing your experience.

 

Your point is well taken. All will work out. I agree - dh and I are a great example. :001_smile:! It's what you do with the opportunities that you have; that's the important thing.

 

There's nothing to worry about; thanks for reminding me!

 

I guess at this point, I just want to know what I'm up against. :001_smile:

 

Peace,

Janice

[Poke Salad Annie]

 

 

I guess at this point, I just want to know what I'm up against. :001_smile:

 

Peace,

Janice

 

 

Mmmmm, well, nothing other than those nice, enticing letters and brochures from all those wonderful schools that would love to have your child (and your money). :lol:

[emubird]

If Grandma wants to finance part of the kids' education, and if she puts this money into a savings account for them in their name before the FAFSA is filed, it will be assumed that ALL this money will go towards paying for college. This will increase the EFC as calculated by the FAFSA.

 

Grandma should keep the money until the actual bills come.

 

If you think your student is going to qualify for merit aid, you probably want to apply to a number of schools, to see who gives the best deal. It should be clear to the student that this is the goal, that they aren't going to get to choose whichever one they like best.

[Jane in NC]

If Grandma wants to finance part of the kids' education, and if she puts this money into a savings account for them in their name before the FAFSA is filed, it will be assumed that ALL this money will go towards paying for college. This will increase the EFC as calculated by the FAFSA.

 

Grandma should keep the money until the actual bills come.

 

 

Yes but Grandma may have been wanting to reduce her tax burden by sharing her wealth with progeny. I say accept gifts from Grandma with grace and the knowledge that the student will most likely have less debt at the end of the road.

 

 

Jane

[creekland]

I'm with accepting MGM scholarships with grace however they come, but to not increase the EFC the money does have to come after the FAFSA and through the student or parents to the college. If I recall correctly, I think people are allowed to give gifts up to $12000 per person without having to declare it on taxes? I'm NOT a tax expert, so correct that if I'm wrong. One could theoretically get a MGP (My Grand Pa) scholarship of $12,000 if the same family wanted to contribute more, but that's it without having to declare it.

[Brenda in MA]

If Grandma wants to finance part of the kids' education, and if she puts this money into a savings account for them in their name before the FAFSA is filed, it will be assumed that ALL this money will go towards paying for college. This will increase the EFC as calculated by the FAFSA.

 

Grandma should keep the money until the actual bills come.

 

 

 

I have also read that if grandma (or granpa or aunt or uncle....) wants to contribute, they should give the $$$ to the parents who then will use it to pay the tuition, room & board, etc. If the money is given directly to the student or to the student's school, then I believe it has to be listed on the FAFSA as money/support received from other sources.

[Gwen in VA]

I was under the impression, though I don't know why, that ANY additional resources had to be listed. I thought that if Grandpa gives money to parents, kid, kid's dog, or the college, it will all affect the financial aid equation and so must be declared, regardless of whether the gift is given six years, six months, or six days before the college bills are due.

 

Am I wrong? This is one time where I would love to be wrong!

[Brenda in MA]

I was under the impression, though I don't know why, that ANY additional resources had to be listed. I thought that if Grandpa gives money to parents, kid, kid's dog, or the college, it will all affect the financial aid equation and so must be declared, regardless of whether the gift is given six years, six months, or six days before the college bills are due.

 

Am I wrong? This is one time where I would love to be wrong!

 

All I know is that I've read this advice on college confidential several times.

I think the logic is that if the grandparents gift the money to the parents, it is theirs to do whatever they want with it. They could use the money to pay their mortgage and then use their income to pay the college. It's probably worthwhile to verify this with a professional before going this route.

 

Brenda

[emubird]

If it's in the student's account, it will be assumed that ALL that money will be used to pay for college. If it's in the parents' account, only a portion of it will be assumed to be for college.

 

So there is a bit of a break if the parents hang onto the money until it's needed. This would also be true for money in the grandparent's account. As the FAFSA doesn't ask about grandparent assets, it's possible that moving money from grandparent's account to parent's or student's account at just the right time would be the way to go.

 

However, if the grandparent's have wanted a yearly tax break over time, this won't work for them. It would still make sense for the grandparents to put this gift into the parents accounts, with the understanding that that is for the student when the time comes, but this depends on having a trustworthy family, I suppose.

 

I don't know if one can really call this lying to the govt, as everybody just "knows" that's what you do. If you go to "how to finance college" seminars, this is the advice they'll give. I assume if the govt didn't like this approach, they'd do something to close this loophole.

 

My guess is, that for most of us, it doesn't really make a big difference to the govt. Rich grandparents tend to have rich kids. Many of us with rich grandparents, if we qualify for anything through the need based aid, will mostly be getting loans, not grants, so they probably assume it's a small minority that might use this trick to get more grant aid. Loans are supposed to get repaid, so it's only the "lower" interest that the govt is paying for (and with economy where it is right now, I'm not sure the govt is actually losing money on that "low" interest rate).

[Hockey Mom]

Our scenario:

 

Children were told up-front by 6th grade that they had two choices in life after they finished high school:

 

1. College

2. Military

 

Said children were also told that education isn't free, and that if they wanted to go to college that they would have to study hard and get someone else to pay for it. Children were informed that both mom and dad had to pay their own way through college (for dh it was the military), and that meant working full time and going to school full time. Children were informed that an education they earned for themselves would be better than an education paid for by their parents.

 

Oldest child is currently, as of February 3rd, ranked FIRST in her graduating class. If she maintains her 4.0 GPA (4.3 weighted GPA), she will receive a full-ride, four-year scholarship to one of our state universities. She will also receive $3k per semester for "living expenses" (which happens to be the same amount for living in the dorms).

 

However.

 

Oldest child is determined to go to a smaller college that caters more toward her goal: veterinary medicine. We still haven't heard what smaller college is willing to dish out for her to attend there.

 

She will go to whichever school with pay the most. That's just how she rolls.

 

The veterinarian she volunteers for twice a week has offered to help her out as well. We'll see how it goes. :)

 

ETA: I should also mention that she's had a job since she was 15 years old. She tithes, pays her own bills (car insurance, gas, cell phone), and saves.

Edited February 3, 2010 by Hockey Mom

[Nan in Mass]

Feel it might be helpful to add that our gut feeling is that for our children, a final debt of one year's expected salary will be managable but any more than two will be unmanagable.

-Nan

[Mommyfaithe]

:iagree: This worked very well for child #2.

 

I hope I haven't written anything offensive. I just wanted to say that there are ways to arrive at the same destination, though they may be side roads that are a bit less traveled, KWIM? I probably should have stayed away from the college boards this morning, but I read this thread and thought I would post about my experience. I spent many nights lying awake worrying about how we could pay for two children to attend college, especially the type of school that child #1 felt drawn to. I probably ate antacids for two years with all the worrrying I was doing. In the end, it was all taken care of, and four years later, I am in awe of how it all has transpired.

 

Again, I didn't mean to offend by my writing about dream schools. It was very hard for my whole family when the decision was made (by my daughter, not us) to attend where the full ride was offered. There was much weeping, wailing and gnashing of teeth, so to speak. We all have survived through it all, and my daughter has grown up and found that she is happy with the decision she made.

 

Oh...gee...you weren't offensive at all. I thought it was all speculation...it was early and I hadn't had my coffee yet...(Note to self: no answering posts before I wake fully up and I am not grouchy)

 

I am totally in awe of the route God has laid out for the older kids yet its been a little like Mr. Toads wild ride...LOL

 

~~Faithe

[TravelingChris]

Here is one big reason we didn't do CC. We are military. With oldest child, we were overseas and there was no CC. Also while he could have taken some classes at the base, he couldn't drive and it would have been very disruptive to the rest of us. Finally, we knew we were moving one year after he started college. THat would have meant he needed to change schools right after year 1. THe same thing is happening with second child. We will most likely move after her graduation. Where- we don't know. For how long- who knows. Same issue-she needs to go away to college to have some stability in her education. Third child- probably will be going into engineering or hard sciences. That is one area I think CC are particularly lacking in. So no CC for last one either even if dh is retired from military.

[Corraleno]

Regarding the "gifts" from Grandma & Grandpa, anyone can give anyone else up to $13,000 per year without paying gift tax. The giver has already paid income (or capital gains) tax on it, and there is no further tax. The giver lists the gift on their tax return, but the recipient does not ~ it is not counted as income. If either the parent or student has the money in an account in their name, however, then it would count as an asset, which I assume you are supposed to declare somewhere on the FAFSA? (College is 4 years off for us, so I haven't looked at any financial aid forms.)

 

Payments for tuition and medical expenses are 100% exempt from gift tax, regardless of amount. Therefore Grandma could pay the college directly, it would not count as an asset for either the student or the parents, and it would not reduce the student's aid or increase the parents EFC. Since Grandma (and aunts, uncles, or anyone other than the parents and student) are not obligated to provide support, their money is not counted. In order for the gift to be exempt from the gift tax ceiling ($13,000) it MUST be paid directly to the college. This is also true for private schools ~ anyone can pay the tuition and it is not considered a taxable gift, as long as the money is paid directly to the school. There are some restrictions as to what counts as an "educational institution," and expenses like room, board, and books, do not count.

 

So if anyone has a relative who would like to kick in some tuition money, the best thing is for them to hold onto it until the student is in college and then pay the tuition directly.

 

Jackie

[Corraleno]

Yes, but Grandma may have been wanting to reduce her tax burden by sharing her wealth with progeny.

 

Gifts do not reduce the tax burden of the giver. The giver pays income tax (or capital gains) on the money regardless of what they do with it after it's earned. In fact, if the giver exceeds the $13K/yr annual limit, they either need to pay gift tax on the overage, or apply it against their Lifetime Gift limit, which is $2 million (that's the portion of your estate that's exempt from inheritance tax, which you can use in your lifetime if you choose). The giver pays the tax on a gift, not the recipient.

 

Jackie

[creekland]

 

Therefore Grandma could pay the college directly, it would not count as an asset for either the student or the parents, and it would not reduce the student's aid or increase the parents EFC. Since Grandma (and aunts, uncles, or anyone other than the parents and student) are not obligated to provide support, their money is not counted. In order for the gift to be exempt from the gift tax ceiling ($13,000) it MUST be paid directly to the college. This is also true for private schools ~ anyone can pay the tuition and it is not considered a taxable gift, as long as the money is paid directly to the school. There are some restrictions as to what counts as an "educational institution," and expenses like room, board, and books, do not count.

 

So if anyone has a relative who would like to kick in some tuition money, the best thing is for them to hold onto it until the student is in college and then pay the tuition directly.

 

Jackie

 

This goes 100% against what we were told in a Financial Aid Seminar at my son's college. They said if ANYONE other than parents or the student sends money to the school for the student, they have to treat it like a scholarship (hence MGM scholarship as the nickname). The Federal Gov't does not allow them to provide (federal + for some, states) aid down into the EFC amount. Therefore, if grams sends in some money, but doesn't cover it all, the amount of aid offered sometimes needs to be reduced. While the EFC doesn't change, you still have 100% of your EFC needed.

 

Since we were in a seminar related to scholarship testing, etc, these are for students the school really wants and is likely to provide close to 100% of need in addition to merit aid. That said, they cannot provide beyond "official" need with gov't options. Any amount grams gives is just going to change who gives what, but not really help the student if given to the college (other than maybe eliminating some subsidized loans).

 

If grams waits till the bill comes and gives her $$ to the parents, they can send it in and it will count toward the EFC without affecting aid. There is that upper $13,000 limit per person before taxes kicks in.

 

Now, all this is hearsay, but the hearsay is coming directly from the Financial Aid office at what is likely to be my son's college choice.

[Jane in NC]

Gifts do not reduce the tax burden of the giver. The giver pays income tax (or capital gains) on the money regardless of what they do with it after it's earned. In fact, if the giver exceeds the $13K/yr annual limit, they either need to pay gift tax on the overage, or apply it against their Lifetime Gift limit, which is $2 million (that's the portion of your estate that's exempt from inheritance tax, which you can use in your lifetime if you choose). The giver pays the tax on a gift, not the recipient.

 

Jackie

 

As is typical for me, I was not clear. I was not suggesting that a gift could be written off income tax but an alternate scenario.

 

Suppose I am a grandma who owns 500 shares of AT&T which currently pays 6.5% in dividends on which I pay tax. Suppose I do not need this asset. I can gift 100 shares to each of my five grandchildren for whom the unearned dividend income may be untaxed or taxed at the kiddie rate, assuming that their unearned income is below a certain level.

 

This has been a popular strategy for funneling money to children or grandchildren although less popular in recent years since the tax on unearned income for children returns to the parent's rate at a certain point.

 

Note that this interesting tax situation for children applies to unearned income--dividends and interest.

 

Does that make sense now?

[Brenda in MA]

Payments for tuition and medical expenses are 100% exempt from gift tax, regardless of amount. Therefore Grandma could pay the college directly, it would not count as an asset for either the student or the parents, and it would not reduce the student's aid or increase the parents EFC. Since Grandma (and aunts, uncles, or anyone other than the parents and student) are not obligated to provide support, their money is not counted. In order for the gift to be exempt from the gift tax ceiling ($13,000) it MUST be paid directly to the college. This is also true for private schools ~ anyone can pay the tuition and it is not considered a taxable gift, as long as the money is paid directly to the school. There are some restrictions as to what counts as an "educational institution," and expenses like room, board, and books, do not count.

Jackie,

 

I agree with creekland. I don't think you are correct here. On the FAFSA, there is a line where the student has to report aid received from outside sources or bills paid on one's behalf. This would include gifts directly from grandma & grandpa to the child or sent directly to the college.

 

However, on the parent's portion of the FAFSA, there is no such question. Parents are assessed on their income and what they have in assets (not including primary home & in retirement account). The FAFSA is filled out once/year, so if grandma gave the parents the money after FAFSA was submitted for the year and then those funds were used to pay the college bill, that money would not show up on the next FAFSA since it would no longer be an asset for the parents.

 

Brenda

[Brenda in MA]

Wow! I had no clue college was that expensive! Our plan is if the girls want to go to college they have to pay for it. We'll help them plan but not pay. I am curious as to why most pp aren't considering community college for the first two years. It's much less expensive and if you attend night classes you can get a lot of adults in class who are returning to college to improve their education/career. Very eye opening stuff.

I wish you all the best in this process!

 

Liz

 

Liz,

 

One other thing to consider in the whole college financing arena... The current federal laws state that students under 24 yo. must have their parents finances considered when they are applying for financial aid regardless of whether the parents have any intention of helping their child pay college expenses.

 

So if the parents make enough money, the child will not be eligible for federal financial aid whether the parents intend to pay or not. This situation makes it very tough for kids without parental support to go to college until after they are 24 yo.

 

Community colleges are less expensive, but they are certainly not free. Where I live, a full-time CC student would expect to pay around $5000 per year, not including living expenses. If the student can work and attend school at the same time and live with parents for free, the finances might work out. However, if the student wants to transfer to a 4-year school, then the costs will be even higher. Now the part-time job may not earn the child enough $$, and he/she will have to take out loans if he/she can afford it at all.

 

I'm not saying that parents should be obligated to help their children pay for college, but I think you need to be aware what they will be up against when the time comes if you don't help them out with college expenses.

 

Brenda

[Nan in Mass]

This is a situation we have dealt with, but with a twist. In our case, my mother in law didn't want to put the money in the children's names because she was afraid they would waste the money on something like a new car the minute they turned 18. Instead, she put the money in my name, even though it added to our taxes. This was something we did to help her out, even though we knew that it might not be very helpful to us in the end.

 

-Nan

Edited February 4, 2010 by Nan in Mass

[emubird]

If the grandmother has lots of extra money to invest, then it doesn't matter if lots of it goes away every year on taxes - there is still enough left to do something with later. If it isn't a lot, though, it can all be eaten up by yearly taxes while it is waiting to be spent.

-Nan

 

What you are saying implies that her principal is being taxed away. Is this true? On investments, we've only ever paid tax on interest earned or capital gains.

 

Also, someone was mentioning advice they heard from one college financial aid office. I wouldn't assume that what one college did/said would apply to all of them. They may say it applies to all, but they may be lying. A college I was at recently took any outside scholarships and applied them to the aid they'd "given" me, so I ended up with no more than what they originally said they'd give me. When I complained, they said it was standard practice, that ALL colleges do this. It isn't standard practice and it isn't even all THAT common. (In fact, it seems uncommon enough that when I've mentioned this on boards in the past, I've been severely criticized for not knowing what I was talking about. I've been told no colleges would do such an underhanded thing. I must be mistaken, and downright stupid besides...)

 

So I wouldn't take one college's word for things. They may only be telling you what THEY do, and then making it seem normal by saying everyone does it.

[Nan in Mass]

Sorry. I knew I shouldn't try to explain finances, which are something that never makes much sense to me. I've oversimplified, obviously, to the point of it not making sense. I'll delete the post. Yes, it is only what you get back in interest or whatever yearly that gets taxed, but inflation enters in and so do tax brackets and so does taxes on other things, and the end result is that your inheritance goes away rather than waiting for the event you want to spend it on.

-Nan

[K-FL]

Just to throw this in the mix: from collegeconfidential Five Steps to prepare for college financially

 

"Whatever you are able to save, DON'T save it in the student's name. This is one of the most common, and most costly, errors families make when saving for college. Colleges will generally consider about a third of student assets to be available for paying college expenses each year. By the end of four years, that means all that ten percent or so will be gone. The exact same amount saved in the parents' accounts will be "taxed" at about a fifth of the student rate."

[Kareni]

A college I was at recently took any outside scholarships and applied them to the aid they'd "given" me, so I ended up with no more than what they originally said they'd give me. When I complained, they said it was standard practice, that ALL colleges do this. It isn't standard practice and it isn't even all THAT common. (In fact, it seems uncommon enough that when I've mentioned this on boards in the past, I've been severely criticized for not knowing what I was talking about. I've been told no colleges would do such an underhanded thing. I must be mistaken, and downright stupid besides...)

 

 

My daughter's college has a policy similar to this. If she were to receive an outside scholarship, she would get the first $500. After that, half of the remaining monies would be used to reduce the college's grant aid to her. The other half could then be used to reduce her part of the bill. (I'll note that her college only gives need based aid; however, several of the other colleges to which she applied had similar policies.)

 

You are not at all mistaken, Emubird, nor stupid.

 

Regards,

Kareni

[creekland]

Let me try to correct a misunderstanding of my post.

 

College costs 40,000

 

Merit Aid - from college 10,000

Need Based aid from college itself 10,000

Federal/State subsidized grants or loans 10,000

EFC 10,000

 

Granny's 10 grand sent to the college MUST replace the subsidized grants and loans - legally - as the student and family alone are responsible for the EFC. Therefore, no net change to the student other than perhaps less loans.

 

Granny's 10 grand given to the parents can go to the EFC leaving everything else as it is. The parents can use the money for a cheap car - or college.

 

If Granny gives 20 grand the COLLEGE can decide how to allocate that last 10 grand as Federal/State issues no longer come into play. It can go toward reducing college aid or toward the EFC. Different colleges can do as they wish.

 

Colleges can even make up the whole 40 grand if they wish - as long as none of it is subsidized. If any of it is subsidized, 10 grand must come from the parents or student (via whatever method).

 

UNLESS... I interpreted what I heard wrong, but plenty of people were asking questions, so it seems pretty solid.

 

We were also told that colleges have to substantiate 1/3 of their records with paperwork. - hence - what we need to send in. IF the college changes the EFC based on other factors, it needs to be documented.

 

Nothing subsidized? No need for paperwork or added rules.