“First came COVID. Then came online college. Then came the lawsuits,” writes Eric Rasmussen in Financial Advisor Magazine, referring to what he calls “the college quandary today”. For many clients, Rasmussen observes, college education is the single biggest funding need they face after saving for retirement.
Here at Geyer Law, we understand this quandary and the concerns about paying for college.. Not only has college funding played an important role in estate planning for parents, we have often helped grandparents incorporate college planning into their own estate and tax planning in order to assist their grandchildren.
As a Hook Law Center article notes, “The relationship between a grandparent and grandchild is a special one, and, where grandparents have the means to help, they want to help grandchildren:
- receive a college education without incurring enormous student loan debt
- start a business
- buy a home
- assist with treatment for drug or alcohol addiction
There is no lack of options for helping a grandchild pay for college, including:
- contributing to a 529 owned by the parents
- Uniform Gift to Minors
- Coverdell Education Savings Account (ESA).
- Direct payment of a grandchild’s college tuition
- lending money to the parents
With COVID-19, a lot has changed.
- For many parents of college-bound students, the income figures they put on the FAFSA forms no longer apply, with downsizing and reduced income making the “expected family contribution’ a true financial hardship.
- Attitudes are changing – on the part of both parents and students about what they want out of an education, particularly if online on even hybrid learning is a big part of what they can expect out of the college experience. Increasing numbers are considering a “gap year”, or taking courses at community colleges. Each of these comes at a long-range cost: a) Transfer students get less in grants than incoming freshmen b) Students who take a leave of absence forfeit the six-month grace period for student loan repayments.
- The CARES Act suspended student loan payments, paused interest rates on those loans through the end of this year, and also earmarked $12.5 billion to colleges, half of which is to be awarded to emergency financial aid grants to students who experienced expense due to campus closure
At Geyer Law, we have always found education planning to be an important part of estate planning. Now more than ever, as both students and their parents re-evaluate their options – and reassess college value in general, grandparents need to reassess the estate planning tactics they put in place prior to the pandemic.
– by Rebecca W. Geyer