Paying For College: Accepting Help from Family

Buy this book »

Although your child is the one you're trying to send to college, don't rule out the possibility that other relatives, like your parents or siblings, may be in a position, and may want, to help you out.

Families can be strange entities, and the larger the extended family, the more opportunities for really weird behavior. Although your pride shouldn't get in the way of having a family member fund all or part of an education, be aware of any strings that may be attached to the gift. At a certain point, the cost of any help to you and your family may become greater than the value of that gift. Weigh this price tag very carefully before you accept help.

Contributing To Established Savings Plans

You may have already set up a Section 529 plan for your child, or a Coverdell Education Savings Account (ESA), or even both. If so, nothing in the rules that govern these plans prohibits other people from contributing to those accounts. If grandparents, your siblings, other relatives, or friends want to make donations to these plans, let them. Just be aware of the following:

• Limits are set on plan contributions in any given year, especially for Coverdell ESAs. These accounts are limited to a set aggregate contribution in each year, regardless of the source. If you've already made a contribution for the full amount for this year, Grandma and Grandpa need to find some other way to save for little Christopher's education for this year.
• Section 529 plans have total plan limits. Each state has its own ceiling on the total size of individual plans, and each state has the ability to raise that ceiling at will. Although the limits are very high and calculated to cover a four-year college education at the ritziest school in that state, you do want to be aware of where that ceiling is, especially as you begin to approach it.
• All contributions into college savings plans of whatever sort (whether Section 529 or Coverdell plans, eligible U.S. Savings Bonds, or trust or UTMA/UGMA accounts) are subject to the Gift and/or Generation-Skipping Transfer tax.

Promising To Pay

Unlike contributions into already existing plans, promises by Grandma and Grandpa (or anyone else) to pay for college are a bit more uncertain; between the time the promise is made and the time to keep the promise, much can, and often does, change.

Don't rely on promises. Every baby is adorable, and every grandparent (or other relatives) may want to do all that they can for that infant. But as time goes on, incomes may drop, health may deteriorate, or relationships may unravel, altering a relative's ability or desire to pay for college. If you've been relying on this promise, and not instituting a savings program of your own, you may be out of luck when freshman year rolls around.