The Gift of Education Brogan Financial

Every parent and grandparent hopes that the next generation lives the American dream – go to college, get a great job, buy a house, and start a family. The Burning Glass institute found that 44% of jobs require a college degree. College is still seen as the primary way to gain the skills and education needed to land a traditional job.

However, the average cost of college has more-than doubled in the 21st century, with the average in-state student attending a public 4-year institution spending an astonishing $25,487 for one academic year.1 That means the average college graduate spends over $100,000 for their four-year degree.

Finding a way to pay for that $100,000 degree is an overwhelming task for many families. Those include merit- or need-based scholarships, state scholarship programs like Tennessee Promise, college savings accounts, and student loans. Every option should be on the table when it comes to funding a college education.

Among the class of 2020, 55% of bachelor’s degree recipients took out student loans, graduating with an average of $28,400 in federal and private debt. And 14% of parents with students in the class of 2019 — the latest data available — took out an average of $37,200 in federal parent PLUS loans.2

As a grandparent, what can you do to help set up future generations and help them pay for college?

Typically, grandparents help pay for a small portion of college expenses. According to the 2021 How America Pays for College survey of college students and their parents, 11% of respondents reported using money provided by relatives to pay for college, contributing an average of $5,060.3 Though the contribution may be small, every dollar counts.4

Here are two options you might want to explore if you are wanting to help out with college tuition expenses.

Option #1: 529 College Savings Plan

Many families use a traditional 529 College Savings Plan, a type of account that provides tax benefits for education savings. While the grandparent can set up their own 529, they can also contribute to a 529 plan owned by a parent of the grandchild. But grandparents must take steps to get the best value from these plans and to avoid hurting a student’s financial aid options.5

Option #2: Pay the college or university directly

One easy option for grandparents is to make payments directly to a grandchild’s college or university. Funds given directly to the institution are not subject to the annual $16,000 federal gift tax exclusion. However, you don’t get the same tax benefits or annualized growth like you would with a 529 Plan. Note: Payments directly to the college or university may affect eligibility for needs-based financial aid.

“An investment in knowledge pays the best interest.” – Benjamin Franklin

Helping a grandchild pay for college can be one of the greatest gifts you can give. How you decide to do that is an individual decision; so, you should take special care when considering your options. If this is a gift you’d like to consider, please speak with one of our advisors today to start planning for the future.

1 https://educationdata.org/average-cost-of-college
2 https://studentloanhero.com/student-loan-debt-statistics
3 https://www.salliemae.com/about/leading-research/how-america-pays-for-college/
4 https://www.usbank.com/financialiq/manage-your-household/pay-for-education/grandparents-contribute-to-college-fund.html
5 https://www.usnews.com/education/best-colleges/paying-for-college/articles/tips-for-grandparents-using-a-529-plan-to-save-for-college