Loan from parents for tuition?

[ZZZDentistZZZ]

Has anyone taken a loan out from their parents? What did you set the interest rate at? We want to set it so it is lower then what I would be paying through anywhere else but high enough so that they make more money then if it was sitting in a bank account.

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[mr24]

i would ask what the interest is at the bank and do a little more than that....

 

[7 Iron]

Has anyone taken a loan out from their parents? What did you set the interest rate at? We want to set it so it is lower then what I would be paying through anywhere else but high enough so that they make more money then if it was sitting in a bank account.

My savings account interest rate is about 0.15%.... so it's pretty easy to beat that

 

[PhoebeAZ]

Yeah savings accounts and even CD rates are so low right now it's a joke, I swear I remember having a 4% rate on a one year CD, but that was before the credit crisis. I'm borrowing from my parents with 3% interest starting a few months after I graduate. I'm so, so thankful that my family lived far below our means while I was growing up so that I don't have to take out $100k loans from the DOE.

 

[m1817]

There are IRS implications for loans between parents and children. See the following article:

http://www.smartmoney.com/taxes/income/how-to-lend-money-to-an-adult-child-1301434343835/

If the loan is not handled properly, parents could end with an income tax liability for not charging an "adequate" interest rate.

 

[HopeforDMD]

Yeah savings accounts and even CD rates are so low right now it's a joke, I swear I remember having a 4% rate on a one year CD, but that was before the credit crisis. I'm borrowing from my parents with 3% interest starting a few months after I graduate. I'm so, so thankful that my family lived far below our means while I was growing up so that I don't have to take out $100k loans from the DOE.

lol You don't have to shy away from acknowledging your family's wealth. I feel like many of the predents on here are familiar with affluence.

God I wish I came from that kind of money though. It must be so easy... "Here son, just take a couple hundred grand. No no it'll be OK, because we'll charge you a little above inflation."

 

[ZZZDentistZZZ]

There are IRS implications for loans between parents and children. See the following article:

http://www.smartmoney.com/taxes/income/how-to-lend-money-to-an-adult-child-1301434343835/

If the loan is not handled properly, parents could end with an income tax liability for not charging an "adequate" interest rate.

Thanks everyone! M1817, that article is exactly what I needed. You can't just arbitrarily pick an interest rate because of taxes.

 

[m1817]

Here is a more recent article about the tax implications of loans between family members:

http://www.smartmoney.com/taxes/income/the-tax-smart-way-to-lend-to-loved-ones/

 

[theleatherwalle]

if a loan is between family I doubt the government needs to know about it. Just have them pay your tuition bill, and keep the receipts set an interest rate you both can agree on. You wouldn't screw your family over right.

 

[jay47]

Here is a more recent article about the tax implications of loans between family members:

http://www.smartmoney.com/taxes/income/the-tax-smart-way-to-lend-to-loved-ones/

Excellent information, good to know this. Thanks for the site.

 

[MikeDiggity]

if a loan is between family I doubt the government needs to know about it. Just have them pay your tuition bill, and keep the receipts set an interest rate you both can agree on. You wouldn't screw your family over right.

Your parents would probably be wise to get some sort of an agreement or contract set-up; loans between family members are ripe for creating hurt relationships according to the Gospel of Dave Ramsey

 

[theleatherwalle]

I was just making a joke, but I don't think anyone would want to hurt their family like that.

Then again we do have some sadistic dentists out there.

 

[m1817]

if a loan is between family I doubt the government needs to know about it. Just have them pay your tuition bill

If your family pays your tuition bill, your school is required to report it to the IRS. See #2 under reportable transactions.

http://www.irs.gov/businesses/small/article/0,,id=148821,00.html

2. Are state-supported colleges and universities exempt from filing Form 8300?
No, colleges and universities are required to file Form 8300 upon receiving, for one transaction or two or more related transactions, more than $10,000 in cash (for example, a tuition payment) in the course of their trade or business of providing educational products and services, regardless of the fact that the money may be excludable from gross income under section 115 of the Internal Revenue Code. The section 115 income exception is distinct from, and does not relieve an educational institution of, the requirement under section 6050I to file a Form 8300 information report.