Smart Ways Grandparents Can Help Fund Their Grandchild’s Education
Across the U.S., many young adults are struggling to make ends meet. More than 60% of grandparents give at least $1,000 to their grandkids, and 10% provide $10,000 or more. 62% feel that ensuring their grandchildren have the best opportunities, including education, is a top priority.
According to the Education Data Initiative, the average cost of college has increased by 38% at public institutions and 29% at private universities over the past 20 years. With room and board, books, and fees, the total price tag can easily top $100,000 for a four-year degree. It’s no wonder families are looking for help, and grandparents are stepping up.
Here are some the strategies that can be implemented to help grandchildren with education costs:
Pay Tuition Directly
One of the simplest, and often most overlooked ways to contribute to educational expenses is by paying tuition directly to the college or university. Under federal tax law, these payments are not considered taxable gifts and do not count against your annual gift tax exclusion.
Just be aware: this applies to tuition only, not expenses like housing, books, or meal plans. And while this method bypasses gift tax concerns, it may still affect a student’s eligibility for need-based financial aid, depending on the school and timing.
Open (or Fund) a 529 Plan
A 529 college savings plan is a popular and tax-advantaged way to save for education. Funds grow tax-free, and withdrawals used for qualified education expenses aren’t taxed. Grandparents can open and manage their own 529 account or contribute to one already owned by the child’s parents.
Due to recent FAFSA changes that take effect for the 2024–25 academic year, distributions from grandparent-owned 529 plans are no longer counted as untaxed student income. This major update removes what was once a financial aid penalty for grandparent involvement.
Make a Lump-Sum Contribution
Want to make a big impact now? You can contribute up to five years’ worth of the annual gift tax exclusion to a 529 plan in one year—currently up to $95,000 per grandchild (or $190,000 for a couple). This strategy, known as “super funding,” offers an estate planning benefit while providing a substantial educational gift.
Help With Student Loans
If your grandchild has already graduated, you can still help. Grandparents often choose to pay down student loans after the fact, either through lump-sum gifts or monthly support. Because this aid comes post-graduation, it won’t interfere with financial aid. Just be sure to consult a tax advisor about potential gift tax implications.
Consider Custodial Accounts or Trusts
For grandparents who want more control—or who are helping younger children well before college age—accounts like UGMAs or UTMAs, or even an education trust, may be appropriate and beneficial. These tools can provide flexible funding and safeguards depending on how and when you want the child to access the money.
Family First: Communicate and Coordinate
Before choosing any method, talk with your grandchild’s parents to ensure your support complements—not complicates—the family’s college funding strategy. Timing, account ownership, and FAFSA implications can all play a role in what’s best for your unique situation.
What matters most isn’t the dollar amount—it’s the lasting message you send when you invest in your grandchild’s future and the emotional support that comes along with it.
Whether you’re considering a 529 plan, trust, or another gifting strategy, professional help can make figuring out your options easier. Talk to a David Lerner Associates investment counselor today to create a smart, personalized education plan that honors your legacy and sets your loved ones up for success.
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