Three Back to College Tips (for Parents and Grandparents)

Mother is helping her son unpack his car and says goodbye with a kiss as he moves into the college campus dorm.

Few things make the heart swell with pride like the sight of a child or grandchild walking across the stage to receive their college diploma. Babies are dressed in onesies bearing the logo of their parents’ alma mater, and little kids are taught to cheer for the football team of the university where grandma and grandpa met. Is it any wonder that, when it comes time for a child to actually go to college, parents and grandparents want to do anything possible to make it happen—including helping pay for it? Supporting the college dream of your child or grandchild is wonderful, but don’t let your intentions of doing good jeopardize your own future. Here are our top back to college tips for parents and grandparents, both financial and otherwise.

Grandparents: Hang On to That Gift!

Been saving for your grandchild’s college education in an investment account? Great! Just be careful about when you make withdrawals, and what you do with them. A gift at the wrong time could jeopardize the chances that your grandchild will qualify for financial aid. 

College students and their parents fill out a form called the Free Application for Federal Student Aid, also known as FAFSA. FAFSA asks about everything from parents’ income to how much is in the child’s piggy bank (not really, but not that far off). 

However, one thing it doesn’t ask about is whether there are any third parties, like grandparents, aunts, or uncles saving for the child’s education—or how much they’ve saved. If you withdraw money from an investment account or 529 college savings plan to use for your grandchild’s tuition, the student and parents must report the amount of the gift as the student’s income in the next year’s FAFSA or other financial aid forms. This “income” can slash your student’s eligibility for financial aid by as much as fifty percent of the amount you withdrew. 

If you withdrew $20,000 from your investment account to apply toward your grandson’s tuition, he and his parents would have to report the gift when they complete the FAFSA. The $20,000 would be treated as income belonging to your grandson, and would be assessed at a rate of 50%. As a result, his eligibility for federal financial aid would drop by $10,000 (50% of the gift), and the Estimated Family Contribution would rise by that same amount. 

The FAFSA does give students an income protection allowance, which is adjusted each year. This allowance permits students to earn some money without affecting their financial aid. For the 2019-2020 school year, the income protection allowance is $6,660. Most college students won’t earn that much from their summer jobs, but a generous gift from grandma could throw a wrench in the works for next year’s financial aid—even if you’re not making another gift next year. 

The bottom line: unless your grandchild really needs your financial gift this year, hang onto it until it is needed. You can always turn it into a graduation gift if it’s still burning a hole in your pocket after four years. 

The bottom line: unless your grandchild really needs your financial gift this year, hang onto it until it is needed. You can always turn it into a graduation gift if it’s still burning a hole in your pocket after four years. 

Parents: Help Your Child Establish Credit (Carefully)

Especially if your child is in school far away, it may be helpful for them to have a credit card to pay for textbooks and to handle emergencies. Having a credit card can also help them begin to establish a good credit history that will serve them well after they graduate. 

While credit card use can encourage kids (and adults) to spend more than they have, in a few years, your student will be out on their own anyway; it’s better to teach them to use credit responsibly. Begin with a card that has a low credit limit, and see if you can get one with reward points or airline miles.

First and foremost, have the bill sent to your home. That way you will be able to monitor their charges and discuss charges with them. Your student will be able to view their bill online. Consider setting up automatic payments to pay off the card in full each month and build that positive credit history. Just make sure your child reviews their account monthly to confirm there are no unauthorized charges, not to mention to see how quickly charges add up. 

The bottom line: help your kids get a credit card—but take an active role in helping them learn how to manage it. 

Plan for Worst-Case Scenarios

Congratulations: your child is becoming an adult, and you are helping them prepare financially. But if your student is over 18, that means they are legally an adult, even if they still need a little financial help from parents or grandparents. That status means that, if something happens to them, you may not be able to get the information you need from their college or doctors. 

It’s likely your child will sail through their next year of school in excellent health. If there is an emergency like an accident or sudden illness, though, there are certain documents you will want to have in place. 

You will want a HIPAA release form to allow their medical care providers to communicate with you. This release can be limited, so your child can be assured that you’re not privy to medical information they want to keep private. Your child's university probably has its own HIPAA release, and you should have your child sign one from other regular health care providers as well. 

In addition, your child should sign medical and financial powers of attorney so that, in the event they are unable to make medical decisions on their own behalf or manage their financial affairs, you will be able to seamlessly step in and do so for them until they recover. Hopefully, you’ll never need any of these documents, but if you do, you will be very relieved to have them. 

If you have further questions about how you can best support your college-bound child or grandchild, we invite you to contact our law office to schedule a consultation.

Categories: Finances

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