FAFSA Grandparent Loophole

Good news for grandparents who want to help contribute to their grandchildren’s college education. A new rule change to the Free Application for Federal Student Aid (FAFSA) means that a student’s financial aid will no longer be impacted by monetary contributions from grandparents.

In the past, when a student was applying for financial aid via the FAFSA, the student was asked about “untaxed income” and “money received, or paid on your behalf” — in other words, gifts from grandparents. These gifts were then included by the government when calculating how much financial aid the student could receive. Thanks to a change in the law which has gone into effect this year, students are no longer asked about this income, meaning gifts from grandparents will not count against a student seeking financial aid. [Note, however, that a few hundred colleges are also using the CSS Profile — another financial aid form — which may ask about contributions from grandparents and take that into account when awarding financial aid.]

The New York Times recently covered this issue, and concluded that one of the best ways to help a grandchild with education costs is to open a 529 college savings plan. The account is tax-free if used for eligible educational expenses. Giving your grandchild the gift of higher education may also help you reduce your estate and save on estate taxes.

Questions about putting money aside for grandchildren? We can help with this and any other elder law issues you may have, such as creating an estate plan. Please give us a call or email us! As knowledgeable Elder Law attorneys, we can provide the legal advice you need to achieve your long term goals.