The Wall Street Journal recently published an article outlining three ways grandparents can help their grandchildren pay for college. The article provides a good high-level view of the available options. Each option has its pros and some significant cons when it comes to maximizing the grandchild’s financial aid award.
The three strategies covered in the article are:
- Invest in a 529 plan
- Direct payment to an educational institution
- Fixed-indexed universal life insurance policy
The best strategy is the one your family chooses after carefully assessing the details of your financial situation.
Below is a graphic showing the many ways and the various amounts gifted by grandparents. Note the 7% of grandparents who have taken on debt to help a grandchild pay for college. A little known fact about student loans is that you can’t bankrupt your way out of the debt, and the government can withhold a portion of your social security payments.
Under the Treasury Offset Program, the Departments of Education and Treasury coordinate to withhold a portion of an individual’s Social Security retirement or disability benefit to pay off their outstanding federal student loan debt; this process is known as “administrative offset.”
In fact, about 114,000 student loan borrowers over 50 years of age are now losing a portion of their Social Security benefits due to an old student loan, according to the Government Accountability Office. Furthermore, the number of borrowers over age 65 facing this predicament has increased by a shocking 540% over the last decade.
Hopefully this wont apply to you, but it’s important know the facts!