Will this affect need-based aid?

[casperhater123]

I recently and unexpectedly found out that I will be receiving a substantial gift from my grandparents towards my tuition. In fact, it will make it so that I will graduate debt free, so I am beyond grateful. However, the school that I will be attending gave me a decent chunk of institutional need-based aid that I'm counting on, and it's also not a guarantee my grandparents will continue to give this gift each year. The plan as of right now is that they will put this money in a 529 and send the money directly to the school. My question is, will this be a red-flag for financial aid and possibly get rid of my institutional aid either for this year or future years?

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[CBass2288]

A familial gift is not, at the federal level, taxable income MOST of the time. I highly doubt that the gift you received will even be reported to your medical school, let alone impact your aid, as I'm not sure how that would even happen. Below is directly from the IRS website FAQ:

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

1. Gifts that are not more than the annual exclusion for the calendar year.
2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
3. Gifts to your spouse.
4. Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

 

[casperhater123]

A familial gift is not, at the federal level, taxable income MOST of the time. I highly doubt that the gift you received will even be reported to your medical school, let alone impact your aid, as I'm not sure how that would even happen. Below is directly from the IRS website FAQ:

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

1. Gifts that are not more than the annual exclusion for the calendar year.
2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
3. Gifts to your spouse.
4. Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

So I believe that it won't have any implication on FAFSA, but my school uses the CSS profile, as well as its own separate school-specific form. I'm just worried they will see it and tweak

 

[polymerization]

I'm thinking the real issue here is that you can't trust anyone to hold that kind of money for you once offered. You're scared your grandparents will renege down the line; maybe that your parents could spend it under your nose; or that it will be considered as part of personal assets when you apply for institutional aid. I'm sure you have your reasons for the paranoia, which is beside the point. I think there should be some procedural/administrative avenue for you.

I'm not a lawyer, but I'm pretty sure if your grandparents mailed a half-million dollar check to your school unannounced, I can't imagine they will know what to do with it. Whatever they do with it, there will be a documented paper trail of what is ipso facto money for college... so whether they act on that knowledge or not when processing financial aid isn't within my area of expertise, but I can tell you from an administrative position that it does not benefit you in any way and can probably have unintended consequences for obvious reasons.

 

[LizzyM]

If I follow: the school determined that you had financial need. They offered some need-based aid to assist you. They presume you will borrow to cover some or all of the expenses not covered by the university's largess. Your grandparents' generosity will cover costs not covered by the school's grant and you won't need to borrow money this year.

I guess the question would be: if someone gives me a large gift that goes toward my paying tuition and expenses, will it influence the school in giving me need-based aid? My interpretation is that the school calculated what you could afford and gave need-based aid based on that calculation. You've come up with a way to cover those costs without borrowing. I can't imagine that the school would penalize you for not having to borrow to cover what it figured would be your share of the cost of your education.

If there was going to be a red flag, I'd say it would be foregoing the loans the school is likely to offer. I don't believe that they'll assume you don't need the need-based aid on the basis of your refusal of a loan.

 

[wysdoc]

So I believe that it won't have any implication on FAFSA, but my school uses the CSS profile, as well as its own separate school-specific form. I'm just worried they will see it and tweak

When you have a change in your financial situation like this, inform the FA office.
You filled out your initial application accurately with the information you had at the time.
Wait until this 529 thing is confirmed and you are sure it is going to happen for this school year.
It’s the straightforward thing to do, so do it when it is a sure event.

Eligibility for aid is re-determined each year anyway, so if your grandparents' 529 isn't ready in time for this school year, it will be taken into consideration for the next one.

 

[surelycalm]

A 529 is owned by the person setting it up. They can even change the beneficiary at will. It shouldn't affect your aid.

 

[wysdoc]

A 529 is owned by the person setting it up. They can even change the beneficiary at will. It shouldn't affect your aid.

If the grandparents make the payment directly to the school as the OP indicated, the FA office will definitely use that to determine remaining need.

 

[surelycalm]

If the grandparents make the payment directly to the school as the OP indicated, the FA office will definitely use that to determine remaining need.

You can get reimbursed directly from the 529. For all they would know, you took out a private loan.

In all honesty, a 529 probably doesn't make a whole lot of sense in this situation if it's being funded year to year. The major benefit is setting one up and letting the assets grow tax free over at least a few years, if not many years. If the grandparents just pay the tuition directly, or reimburse the OP it would probably be a safer choice with respect to their aid.

 

[wysdoc]

You can get reimbursed directly from the 529. For all they would know, you took out a private loan.

In all honesty, a 529 probably doesn't make a whole lot of sense in this situation if it's being funded year to year. The major benefit is setting one up and letting the assets grow tax free over at least a few years, if not many years. If the grandparents just pay the tuition directly, or reimburse the OP it would probably be a safer choice with respect to their aid.

I agree with this information, in respect to investment vehicles. A 529 set up years ago would have grown substantially.
A 529 restricts the use of funds to their intended function and some grandparents would prefer to set it up this way to be sure the money goes towards tuition.

 

[surelycalm]

some grandparents would prefer to set it up this way to be sure the money goes towards tuition.

Would a bank check sent directly to the school impact their future aid? That would be the other alternative so that the grandparents can ensure the money is used properly.

Otherwise, it would probably be best for the OP to take out the offered loans, pay the tuition and just have the grandparents pay off the loan. More work, but probably the safest.

 

[casperhater123]

Would a bank check sent directly to the school impact their future aid? That would be the other alternative so that the grandparents can ensure the money is used properly.

Otherwise, it would probably be best for the OP to take out the offered loans, pay the tuition and just have the grandparents pay off the loan. More work, but probably the safest.

They were going to give me the money as a loan originally (they are private lenders occasionally). However, just this past week, they told me it would be a gift instead. I spoke with them about this dilemma of it affecting my future aid, and they are open to not using the 529 (they haven't put the funds in there yet). So my guess is they will just give me the check, and I'll pay it directly to the school.

I did actually consider taking the fed loans and then just paying those off directly. However, the origination fees basically make this option cost a couple thousand dollars more for no reason.

 

[LizzyM]

The school gave you need-based aid and expected you to come up with the rest one way or another. I can't see where coming up with the cash, when you did not conceal any assets when completing your aid forms, is in any way suspect. As long as it is $20K or less per calendar year from each giver, Grandma and Gramps can each give you a nice check and there is no gift tax and no issues.