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How Grandparents Can Help with College Costs

Few things are as eye-opening as the cost of a college education. According to The College Board, the average cost for full-time college tuition and fees was over $35,000 in 2018. And while parents and students are picking up the bulk with their incomes, savings and loans, increasingly, grandparents are helping their grandchildren pay for college. If you’re thinking of contributing to your grandchild’s college fund, here are some best practices for you to consider so you can make the most of your hard-earned money.

If you decide you can help, start now 
Wouldn’t it be great if you could look at your brand-new grandbaby and know exactly where he or she will be headed in 18 years? While you can’t know for sure if your grandchild will want to go to college in the future, you can start saving now to be sure they’re covered if they do take the college route. The years ahead will give your money, even in modest amounts, the best chance to grow into a tidy sum. 

 
Stay in control 
Since you can’t predict the future, you’ll want to make sure your investments and savings are used in the way you intended. You can do that by keeping the money in your name. 
Another reason for your grandchild not to “own” that money is because it can cut down on the financial aid package he or she receives. The free application for Federal Student Aid (FAFSA) rules put a big bite on student “income,” which can be any money that’s in their name. 

 
Weigh the rewards versus the risks 
A savings account is a safe way to start a college fund, although if you want your money to grow significantly, you might be better off choosing a savings option that offers a higher rate of return. 

 
Share Certificates or CDs pay a more attractive, guaranteed rate over the life of the certificate. Plus, the longer the term you choose, the higher the rate. Since you are locked into a rate and term, though, you won’t be able to take advantage of rising rates, so a moderate-term strategy might work best. 

 
On the upper end of the savings range, a brokerage account can pay bigger dividends and grow your savings significantly but with a higher degree of risk. Although you will pay fees, it could be a smart decision to work with an experienced investment broker to help you achieve the best results. 

 
Invest for college costs and save on taxes with a 529 College Plan 
These plans are a popular and smart way to save for college. 529 accounts opened in your name give you tax-free earning and free withdrawals, as long as the money is spent on qualified college expenses. Unlike some other savings options, 529’s will cover books and room and board in addition to tuition. Since the account is in the owner’s name and not the beneficiary’s, if one grandchild decides not to go to college, the assets could be used if another grandchild does want to attend college. Or, the money can be kept in the account and withdrawn by the owner, although you will have to pay a fee and income taxes if the funds aren’t used for educational purposes. 

 
A 529 plan that isn't owned by the parent or student doesn't count toward the FAFSA estimate of a family's ability to pay, but distributions from your account do count as student income. It makes sense to consult with a financial planner to understand the best way to set up and administer these accounts to provide the greatest benefit to your grandchildren. 

 
Learn more 
Check out the Wright-Patt Credit Union “Saving for College” life event page for more useful information and expert resources. We can help you achieve the financial flexibility and freedom you need to contribute to your grandchildren’s higher education!