Financial Aid question - how best for grandma to help?

[Hoggirl]

I know I should know the answer to this, but I’m not sure I do.  Friend’s daughter accepted to Yale. Parents can’t afford the amount Yale expects them to pay because they thought outside scholarships would reduce their family responsibility, not the package provided by the college.  She has a free ride at Hendrix, but Yale is the top pick.  Grandma is willing to help.  What is the best way for grandma to help pay without impacting future financial aid awards?  To whom should grandma be paying/gifting the $?? Pay directly to Yale? Gift to parents? Gift to student?  I’m assuming she would contribute each year rather than making a lump sum gift, but I need to double check that. 

I’m not trying to be unethical!!!  It just seems like I have read somewhere that there is a way to do this that is preferable. 

[J-rap]

I'm no financial expert at all, but my understanding is that a financial gift limit to a single person in a calendar year is $15,000 (as far as not needing to count it as income or pay taxes on it).  So, if grandma sent the money to her granddaughter, granddaughter would not have to report it anywhere.  She could just spend it as she chooses, and could choose to spent it on college tuition.  The college would not need to know where it came from.  That's my understanding, anyway.

[regentrude]

7 minutes ago, J-rap said:

I'm no financial expert at all, but my understanding is that a financial gift limit to a single person in a calendar year is $15,000 (as far as not needing to count it as income or pay taxes on it).  So, if grandma sent the money to her granddaughter, granddaughter would not have to report it anywhere.  She could just spend it as she chooses, and could choose to spent it on college tuition.  The college would not need to know where it came from.  That's my understanding, anyway.

The bolded is not correct. The money may be exempt from gift tax, but the student is required to disclose the gift on the FAFSA under 45j. It will then be considered in the calculation of any need based aid.

The above board way for grandparents to help is for the student to take out loans and for the grandparent to pay those off after graduation.

 

Edited April 2, 2019 by regentrude

[Hoggirl]

Well, it’s not technically a limit. It’s a limit before one has to file a gift tax return.  It would only be an informational return, however, and reduce the amount excluded from estate taxes at death.  But grandma doesn’t have 4 or 5 million (or whatever the exclusion amount is) anyway, so even if she gives above that, it’s not going to matter.  I know how the gift tax stuff works. 

I’m focused on how colleges perceive the gift in determining future awards. 

But, thanks for the speedy reply!!!! 

[GoodGrief]

They may want to talk to an accountant. I believe that the amount that can be gifted tax-free increased this year, and there are ways to split up gifts to avoid triggering a tax. The question would be how that would impact the Yale financial aid.

It's worth talking to Yale as well. I've told the story here about my daughter's brother in law having an exceptionally successful financial aid appeal there last year. They do seem to listen to their students. In his case though, he did not get final word on the aid until August, which means you are turning down other options in the meantime and hoping for the best.

[Hoggirl]

@regentrude - the prior-prior only relates to income, not assets, correct? 

[regentrude]

1 minute ago, Hoggirl said:

I’m focused on how colleges perceive the gift in determining future awards. 
 

the gift will be considered "other" student income on the FAFSA

[regentrude]

1 minute ago, Hoggirl said:

@regentrude - the prior-prior only relates to income, not assets, correct? 

what is "prior-prior"?

ETA: Assets are reported as they are on the day the FAFSA is filed

Edited April 2, 2019 by regentrude

[Hoggirl]

@GoodGrief1 - Yale told them not to bother appealing. 

[Hoggirl]

@regentrude - I thought FAFSA was based on prior-prior tax information.  Of course, as you accurately pointed out, the gift isn’t taxable.  I’m assuming there is somewhere else on the FAFSA or CSS profile that requires disclosure of other income that isn’t taxable, though. 

[regentrude]

1 minute ago, Hoggirl said:

@regentrude - I thought FAFSA was based on prior-prior tax information.  Of course, as you accurately pointed out, the gift isn’t taxable.  I’m assuming there is somewhere else on the FAFSA or CSS profile that requires disclosure of other income that isn’t taxable, though. 

It specifically asks about income.

 

When a grandparent or any other third party pays a student's college bills, including distributions from a grandparent-owned 529 college savings plan, that is considered "cash support" and must be reported as untaxed income to the student on the student's FAFSA. For example, in the 2017-18 FAFSA, this would appear in the answer to question 45j: "Money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form." The subregulatory guidance of the 2017-18 Application and Verification Guide confirms this interpretation:

j. Money received (45 only). The student reports any cash support he received, but if dependent he does not count his parents' support, with one exception: money from a non-custodial parent that is not part of a legal child support agreement is untaxed income to the student. Cash support includes money, gifts, and loans, plus housing, food, clothing, car payments or expenses, medical and dental care, college costs, and money paid to someone else on his behalf. For example, if a friend or relative pays his electric bill or part of his rent, he must report the amount as untaxed income. If he is living with a friend who pays the rent and the student's name is on the lease, the rent paid on his behalf counts as cash support because he is responsible for payments that his friend is making. Note that this item does not appear in the parents' question-only the student reports this information.

[regentrude]

You can of course work around this by the grandparents giving the money as a gift to the parents who are NOT required to disclose the gift as income on the FAFSA if it remains below the taxable threshold

Edited April 2, 2019 by regentrude

[J-rap]

6 minutes ago, regentrude said:

The bolded is not correct. The money may be exempt from gift tax, but the student is required to disclose the gift on the FAFSA under 45j. It will then be considered in the calculation of any need based aid.

The above board way for grandparents to help is for the student to take out loans and for the grandparent to pay those off after graduation.

 

Ah, sorry -- I obviously didn't have a clear understanding of this.  Thanks for explaining.

[Hoggirl]

7 minutes ago, regentrude said:

You can of course work around this by the grandparents giving the money as a gift to the parents who are NOT required to disclose the gift as income on the FAFSA if it remains below the taxable threshold

 

What do you mean by “taxable threshold”? 
ETA: So you are saying as long as grandma only gives $15,000 to each parent, that amount is not reported on the FAFSA?  Is that what you mean? 

Thanks for hanging with me!  

I’m wondering if grandma gives the money to the parents and then they use it to pay it’s not there (in assets) when the FAFSA is filed. CSS is filed every year, too, correct? 

Edited April 2, 2019 by Hoggirl

[kokotg]

If the gift is to the parents, it's not reportable on FAFSA, but it is on the CSS Profile, so Yale will know about it. I'll say that we get a substantial cash gift from my in-laws every year, which we reported to Profile schools, and most of them seem not to have taken it into account in making their financial aid calculations. In fact, at one school I noticed they didn't have his Pell Grant listed on his financial aid award. When I e-mailed them to tell them, they told me they'd added the amount I reported as gift income on the Profile onto his FAFSA. I explained why I hadn't included it there, and they agreed they'd made a mistake and took it off, and the financial aid award went up as if that money didn't exist at all, even though I'd very explicitly told them that we received it. All of this to say that it's possible Yale would not hold money given to the parents against the student, but it's not a sure thing. 3 out of 4 needs met schools seem not to have included it in our case. It was a very pleasant surprise. 

Another option is for the grandparents to offer to pay back any loans taken out after the student graduates.

ETA: another option is to wait to give any money until second half of junior year, then it shouldn't affect financial aid calculations.

Edited April 2, 2019 by kokotg

[Hoggirl]

They are the ones in the weird situation where their housing is provided at the camp where Dad works, Dad is close to retiring (several years older than mom, and he’s over 65), and they don’t currently own a house, but have money set aside to buy one.  I’m sitting here wondering what would happen to their fin aid package if dd deferred a year, he accelerated his retirement (was looking to in another year or year and a half anyway), and they bought a house.   

I’m really grasping because I don’t know specific numbers at all.  Grandma has not been specific with numbers either.  Ugh.  I’m so stressed FOR my friend! 

[Sebastian (a lady)]

1 hour ago, Hoggirl said:

They are the ones in the weird situation where their housing is provided at the camp where Dad works, Dad is close to retiring (several years older than mom, and he’s over 65), and they don’t currently own a house, but have money set aside to buy one.  I’m sitting here wondering what would happen to their fin aid package if dd deferred a year, he accelerated his retirement (was looking to in another year or year and a half anyway), and they bought a house.   

I’m really grasping because I don’t know specific numbers at all.  Grandma has not been specific with numbers either.  Ugh.  I’m so stressed FOR my friend! 

Because they use prior-prior tax submissions, they would then be in a situation where they would have one picture through the FAFSA or CSS and then would need to turn around and provide new information to each school. 

Also because colleges assume that families pay using savings, income, and future earnings, it might not reduce their EFC much.

There are people who specialize in Educational Financial Planning.  Many accountants and financial planners know how to do taxes and save or invest, but don't understand the financial aid consequences. 

[fourisenough]

I’d say take the free ride at Hendrix! 😉

[RootAnn]

1 hour ago, Hoggirl said:

They are the ones in the weird situation where their housing is provided at the camp where Dad works, Dad is close to retiring (several years older than mom, and he’s over 65), and they don’t currently own a house, but have money set aside to buy one.  I’m sitting here wondering what would happen to their fin aid package if dd deferred a year, he accelerated his retirement (was looking to in another year or year and a half anyway), and they bought a house.  

How much of this would show with prior-prior tax reporting? I'm thinking that once Dad retires, the schools start counting his retirement accounts (maybe just CSS profile??). I don't remember for sure, but one of the Hive parents several years back ran into where their situation changed because the Dad retired and his retirement assets, which had been protected/invisible were suddenly considered fair game to be used for paying for college. 

[Hoggirl]

20 minutes ago, fourisenough said:

I’d say take the free ride at Hendrix! 😉

 

Well, unfortunately, I learned today that a student from her high school with whom she has had significant challenges has decided to matriculate there. I don’t knwo the ins and outs of it, but it sounds pretty bad, and now she doesn’t want to go there because he will be there???

Hadn’t considered that retirement stream would then be counted.  Gosh, there’s apparently no escape. 

I feel so bad for them.  She chose to do a competitive scholarships competition weekend at Oxford at Emory this weekend instead of one at WashU that conflicted.   She received full tuition there but didn’t really like it??  Too small?  She was also accepted to Emory, but no merit there. Then they learned that WashU would have allowed them to stack her outside scholarships and not reduce her awards! 😩 

I just don’t think they have done enough research along the way.  I have given advice, but only as asked, and it’s certainly delicate because it involves personal finances. 

[Lanny]

This is IMO very very very tricky.  A C.P.A. or I.R.S. Enrolled Agent who doesn't specialize in university finances would be completely lost with this issue.  They could handle the I.R.S. part of it, but not the FAFSA and CSS Profile issues.

That family should look for someone who is an "expert" (not a word I apply to myself or other people very often) with regard to financing university and what would be the best way to handle this situation, at the very last minute, which is the case for the family of the student who wants to go to university in the Fall.  

[kokotg]

3 hours ago, Hoggirl said:

 

I feel so bad for them.  She chose to do a competitive scholarships competition weekend at Oxford at Emory this weekend instead of one at WashU that conflicted.   She received full tuition there but didn’t really like it??  Too small?  She was also accepted to Emory, but no merit there. Then they learned that WashU would have allowed them to stack her outside scholarships and not reduce her awards! 😩 

 

Oxford is indeed very tiny, but everyone goes to the Atlanta campus after 2 years....of course, 2 years sounds like a lot longer when you're 17 or 18 than it does to old folks like me 😉  Sounds like she has a lot of good options, but that's probably not much consolation when you feel like your THIS close to your dream school 😞 

[*LC]

5 hours ago, Hoggirl said:

They are the ones in the weird situation where their housing is provided at the camp where Dad works, Dad is close to retiring (several years older than mom, and he’s over 65), and they don’t currently own a house, but have money set aside to buy one.  I’m sitting here wondering what would happen to their fin aid package if dd deferred a year, he accelerated his retirement (was looking to in another year or year and a half anyway), and they bought a house.   

I’m really grasping because I don’t know specific numbers at all.  Grandma has not been specific with numbers either.  Ugh.  I’m so stressed FOR my friend! 

 

I think the family needs to tell Grandma an exact number they need to make Yale work. She may have no clue what colleges can cost these days.

If she says yes to the amount, then I would ask her to pay that money after final CSS/FASFA are filed or after grand-daughter transfer/drops out. (I'm not suggesting the daughter will not graduate, but I would want the money to still be there in the unlikely event she does not finish.) I would suggest the parents use their house money to pay for Yale and then use Grandmother's money to pay for house. (Depending on family dynamics this might need some type of legal document. It would also need to be written into the will.)

I would contact Yale and ask how retirement is treated since the father is of retirement age and will be retiring while kid is in schoo$

I would suggest the parents either contact Yale to see if that will impact financial info in future years, phrase it in if a family member is willing to assist with the cost this year., but I don't know if this would open a can of worms with the school wanting even more money. I have never had to deal with a CSS school. 

I don't think you friend did anything wrong. They probably believed what they were told that meets needs schools would meet their need or cost x if they made X. Every school is different and there is no way to know all the ins and outs. Net price calculators have come a long way, but they still don't work for unusual situations.

And, I'm saying that as someone would have absolutely no problem telling my Yale-accepted student to go to Hendrix (no clue if it is big enough that she wouldn't see high school guy) or Oxford for two years or whatever state school she applied to as a safety. I probably would have ruled out Yale a long time ago in this process.

 

 

 

[Hoggirl]

Thanks for all the advice!  

I learned a bit more, and things aren’t as “tight” as I imagined.  If they continuing working at the camp for four more years, they can make it work with only federal loans and no help needed from grandma. They really want this for their daughter, so I think that is how they will proceed. 

[*LC]

That is a quite a relief. As others suggested, if everything goes as expected, then grandmother can help pay off loans after graduatio,. Or, she may even be able to pay for senior year if they decide to retire at 3 years.

[Hoggirl]

@*LC - yes, it is a relief.  As I had written, without knowing concrete numbers, it was hard to be of of too much help.  

As I wrote, their lack of understanding of how outside scholarships would be applied was the confusion for them.  I’m sure they said, “If you get the Coca-Cola,” we can make it work.  The good news is that she can use it for ten years.  They are going to investigate if they can apply it toward loans at the end. 

I was very clear with dh that if we were not willing to pay full-freight somewhere, that needed to be communicated from the get-go to ds and that we shouldn’t let ds apply to schools where price was more than we would be comfortable with.  Having clear conversations and understanding the process from the get-go is vitally important! 

[regentrude]

22 hours ago, Hoggirl said:

What do you mean by “taxable threshold”? 
ETA: So you are saying as long as grandma only gives $15,000 to each parent, that amount is not reported on the FAFSA?  Is that what you mean? 

Thanks for hanging with me!  

I’m wondering if grandma gives the money to the parents and then they use it to pay it’s not there (in assets) when the FAFSA is filed. CSS is filed every year, too, correct? 

Yes. Gifts parents received that are not taxable don't show up on their tax return, and the FAFSA only asks whether the student is receiving a gift, not the parent.

[Sebastian (a lady)]

55 minutes ago, regentrude said:

Yes. Gifts parents received that are not taxable don't show up on their tax return, and the FAFSA only asks whether the student is receiving a gift, not the parent.

 

Above is true, but the CSS can ask many things that are not on the FAFSA.   Not only is there a set of basic questions, but also colleges can add institutional questions.  We had to list the year/make/model of our vehicles and the amount in our life insurance policies (those questions probably upset me more than any others).

[Sebastian (a lady)]

4 hours ago, Hoggirl said:

@*LC - yes, it is a relief.  As I had written, without knowing concrete numbers, it was hard to be of of too much help.  

As I wrote, their lack of understanding of how outside scholarships would be applied was the confusion for them.  I’m sure they said, “If you get the Coca-Cola,” we can make it work.  The good news is that she can use it for ten years.  They are going to investigate if they can apply it toward loans at the end. 

I was very clear with dh that if we were not willing to pay full-freight somewhere, that needed to be communicated from the get-go to ds and that we shouldn’t let ds apply to schools where price was more than we would be comfortable with.  Having clear conversations and understanding the process from the get-go is vitally important! 

 

I very much agree with the bolded.  Junior year (or even sophomore year) is the time for this conversation.  Run an EFC calculator (the one from College Board will estimate both the Federal Method EFC (from FAFSA) and an Institutional Method EFC (from CSS).  Run Net Price Calculators.  Look at College Navigator to see what the Net Costs for different income levels are (Some have lots of discounting, but not all.  Some also expect an EFC 0 family to still pay $12-15k per year.) Give yourself some time for those numbers to sink in*.  Consider your budget, your resources, and if and how much you are willing to borrow or support your student borrowing.

The time for determining how much college costs and what you can afford is when your student is deciding where to apply.  This is where applying to a spectrum of schools with a range of admissions likelihood and cost is helpful.  It's not going to be great if your kid is accepted to a fantastic state university where there is a $25,000 extra cost for out of state students that you can't meet.  It's also not going to be great if the only affordable option your student has on the list is a 100% meets need school that accepts <10% of applicants.

*Seriously, these are big numbers, especially when you remember that you're looking at annual costs that have to be multiplied by 4-6 to cover an undergraduate degree.  The amount of available federal aid might pay for most of tuition for an in-state school, but it isn't going to cover the entirety of the annual cost of attendance for most students.  Spring of senior year with acceptances on the table and a deposit deadline looming is not the time to be having the first discussions on how to make it work.

[Hoggirl]

^Preach it, sister!

[GoodGrief]

On 4/2/2019 at 10:58 AM, Hoggirl said:

They are the ones in the weird situation where their housing is provided at the camp where Dad works, Dad is close to retiring (several years older than mom, and he’s over 65), and they don’t currently own a house, but have money set aside to buy one.  I’m sitting here wondering what would happen to their fin aid package if dd deferred a year, he accelerated his retirement (was looking to in another year or year and a half anyway), and they bought a house.   

I’m really grasping because I don’t know specific numbers at all.  Grandma has not been specific with numbers either.  Ugh.  I’m so stressed FOR my friend! 

 I really wonder who at Yale told them to not bother appealing? This is a situation which clearly merits an additional look in committee. I'd ignore the "don't bother" advice (which may be the opinion of one random person in the office) and appeal anyway 🙂

[Hoggirl]

I do have one friend who says, “It’s an asking world.”

Idk the answer.  She spoke to someone in the financial aid office. 

[GoodGrief]

6 hours ago, Hoggirl said:

I do have one friend who says, “It’s an asking world.”

Idk the answer.  She spoke to someone in the financial aid office. 

 Haha, that's exactly right. Won't hurt to ask.