How to handle family loans for tuition?

[Micpenn4]

Hey everyone!

I have been accepted to CDMI class of 2023. It being a private school it is on the expensive end so my grandparents are wanting to loan me all of the tuition at little to no interst rate so I can avoid federal loans. I am researching the best way for them to loan me the money to minimize taxes and fees and was wondering if anyone was in a similar situation and if so how did you handle it?

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[deleted480308]

Can your grandparents handle it if you fail out and can’t repay?

 

[NITRAS]

My opinion, so take it as you will.

Don’t.

Federal student loans are insured against death and disability. The interest rates are higher (mine were 7.6%). It would be better for your grandparents to gift you some money, if only to cover interest.

Let’s say you go $300,000 in loans. Interest on that is about $20,000 a year. Let’s say you pay your grands $3000. This saves you $17000 year.

Your grands are risking $300,000 in an unsecured loan for $3000 year. A good investment will return 7-10% and have a lot less risk, more liquid.

Ps that kinda money changes the relationship. Even if they have an extra $300,000 that they don’t “need”, it still puts you in the position of screwing your grands a lot of money.

It would be as good four you, and a lot better for your grands if they gift you some money. Again my 2cents.

 

[Saddleshoes]

Put everything in writing!

 

[jda02624]

There are a lot of things to consider here. If your grandparents have a lot of money (I'm assuming millions) and they will never need this money for their own expenses (health care, living expenses, other family members help, etc.) it may work. It also depends on how old they are and the likelihood of you paying them back. What about other family members? What about their children and other grandchildren in the family? What if they loan you $300k+ and your grandparents pass away or you never pay them back (for whatever reason)? I basically inherited $300k+ which may not sit well with other family members. Taking a loan from friends and/or family can get really tricky and turn ugly. Consider all of that.
If none of those issues are a problem, then you may want to talk to a CPA or do some research into the best way to handle them paying without tax consequences. I think they can essentially give you the money tax-free if they pay the school tuition directly, instead of giving you $50k/year, for example, which is greater than the $14k/year maximum that someone can gift another tax-free according to the IRS. That's what I would look into.
Ultimately I think the main issue is the lending of that large amount of money to a family member and how that will affect the family. It could be good or really bad.

 

[NITRAS]

One person can gift another person $15k per year, but a couple can gift a person $30k. A couple can gift another couple $60k per year.

 

[deleted961052]

.

 

[oralcare123]

Never rely on words and verbal promises - put everything on paper.
Loaning and accepting money from family and friends comes with strings, protect yourself and be prepared for the situation to get ugly

 

[Tootyfruity]

OP isn't asking if it's a good idea, he's asking about the taxes and stuff

 

[deleted480308]

OP isn't asking if it's a good idea, he's asking about the taxes and stuff

Sometimes the description of best way to do something is to say, “don’t do that”

 

[Goro]

Can your grandparents handle it if you fail out and can’t repay?

Not helping the OP, sb.

 

[deleted480308]

Not helping the OP, sb.

I’m going to disagree here. Not everyone makes it through med school so knowing the risk you take with whoever you borrow from is important. If your grandparents are millionaires and $300k doesn’t matter to them it is different than borrowing what amounts to their retirement fund. The bank doesn’t fold if op leaves med school, gramma might and you don’t have to look the bank in the eye every christmas

It’s not specifically what they asked but it’s helpful for them to consider

 

[Faefly]

They already spent all their time, health, and money on your dad/mom, now you want to take away their money because you are not ready to take full responsibility for your choices!

Also, taking money from them will put you under a lot of pressure.

Please disregard my comment if your grandparents are filthy rich!

 

[Screwtape]

This is called an intra family loan and the minimum interest will have to be equal or greater than the IRS applicable federal rate. Have an estate or contract lawyer write up a contract (they’ve done this before) and have all parties understand and sign. Just find the right lawyer and the rest is straight forward. Best of luck.

 

[TanMan]

Hey everyone!

I have been accepted to CDMI class of 2023. It being a private school it is on the expensive end so my grandparents are wanting to loan me all of the tuition at little to no interst rate so I can avoid federal loans. I am researching the best way for them to loan me the money to minimize taxes and fees and was wondering if anyone was in a similar situation and if so how did you handle it?

Have you thought of borrowing money and taking their money to start your own practice?

Here would be my questions:

- Do they need this money and are they seeking to make any money off this transaction? If so, the next questions may be less relevant
- Can you have them pay the school directly and find a way for them to expense that as a business owner... and is this post-tax income?
- How much do they trust you to pay them back? Do you think they may pass away before you graduate or pay them back? Are you looking to do this transaction formally to ensure them that you will pay them back or do you have little/no intention of paying them back (running out the timer)
- Or are they requesting that you do this transaction formally for one reason or another?

It's pretty straightforward if you're trying to conduct an arms length transaction with an attorney. If you're trying to find ways around it, you need a good estate/contract attorney. I pose these questions to you so that you may have a better understanding of the nature of the transaction, whether you would have to go through the trouble, and your intentions in the context of executing the transaction.