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3 ways Grandparents Can Help Pay For College
It’s crucial that grandparents, parents and students understand the advantages and disadvantages of each option
There are several ways grandparents can help pay for a grandchild’s education without giving money directly to the student. It’s crucial that grandparents, parents and students understand each of the options before deciding which one may be appropriate for them.
For instance, they need to know whether the method they’re using jeopardizes a student’s prospects for need-based financial aid, or if it meshes well with the grandparents’ overall estate plan. Here is a look at three ways grandparents can help fund a grandchild’s education, and the pros and cons of each:
1. Invest in a ‘529’ plan
Financial advisers often recommend the state-sponsored education-savings plans known as 529s to grandparents who want to help with college costs because of the many advantages this type of plan offers.
These plans, which invest mainly in mutual funds, offer tax-deferred growth on every dollar invested, and distributions are tax-free when used for qualified educational purposes. Grandparents can pick any state’s 529 plan, and some states even offer residents a tax deduction on contributions. These plans also are flexible in that any unused funds can be transferred to another grandchild or blood relative.
Grandparents can put as much as $15,000 a year ($30,000 if they are married) per grandchild in a 529 plan without triggering gift-tax consequences. Even better, they can “bunch” five years of annual $15,000 gifts into a 529 in one year without triggering a taxable event, a potentially attractive benefit for those seeking to reduce the size of their estates.
“To me, the 529 is the turnkey solution for college planning,” says Jeff Motske, certified financial planner and president of Trilogy Financial, a financial-planning firm in Huntington Beach, Calif.
Grandparents have the option of owning the 529 themselves or con- tributing to a 529 plan owned by the parent for the benefit of the child. One advantage of owning the account is that you “can control where the money goes right up until the time it’s used,” says Jody D’Agostini, a certified financial planner with AXA Advisors’ Falcon Financial Group in Morristown, N.J. Grandparents can even use the funds for themselves, albeit with tax consequences, should a financial need arise, she says.
There is, however, a downside to grandparent-owned 529 plans for families seeking need-based financial aid: Distributions count as student income on the Free Application for Federal Student Aid, or Fafsa, and student income is weighed much more heavily than parental income in the aid formula.
There are some potential workarounds, however. One option is to switch ownership of the 529 to the parent around the time the grandchild expects to start college. Not every state’s 529 allows for a change in ownership, however, so this is something to explore before choosing a plan, Ms. D’Agostini says.
Another option is to wait until after Jan. 1 of the beneficiary’s sophomore year in college to take a distribution, says Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com.
Since the Fafsa now asks for income and tax information from two years back, there would be no Fafsa on which to report the distribution if the student plans to graduate in four years. (If the student expects to graduate in five years, the family should wait until Jan. 1 of his or her junior year to take a distribution, Mr. Kantrowitz says.)
The grandparent also could roll over up to a year’s worth of college expenses to a parent’s 529 plan after the Fafsa has been filed. Provided all of the funds are spent on qualified educational expenses, it won’t have to be reported on the next year’s Fafsa, Mr. Kantrowitz says.
Some grandparents may not want the responsibility of owning the account, preferring instead to contribute a certain amount each year to a 529 plan owned by the parent for the child’s benefit. This may be appealing to those who want to give small amounts of money each year— around $1,000 or less.
In this scenario, “your grandchild gets all the benefits without you having to worry about maintaining the account,” says Joseph Conroy, a certified financial planner and financial consultant with Synergy Financial Group, a wealth-management firm in Towson, Md.
The downside, of course, is the grandparent cedes control of the money to the parent.
Grandparentowned 529s have a downside related to Fafsa, but there are workarounds.
$2,562 What grandparents spend a year on average on their grandchildren, AARP says, or about $179 billion total
2. Direct payment to an educational institution
Grandparents can write a tuition check for any amount directly to a qualifying college or graduate school without triggering gift-tax implications, says Eric Brotman, chief executive of BFG Financial Advisors, a financial planning and wealthmanagement firm in Timonium, Md. Some grandparents like this option because they can pay the university directly and still give the grandchild an additional $15,000 tax-free. Grandparents, however, can’t claim a charitable distribution for tuition they pay on a grandchild’s behalf. Also, this exemption to the IRS’s gift-tax rules applies only to tuition expenses and not to other college-related expenses such as books and supplies. Another consideration is that the money isn’t refundable if the student decides to switch schools, so it isn’t advisable for grandparents to prepay tuition for all four years.
Also, grandparents should be aware that this type of payment could have an impact on the student’s eligibility for need-based financial aid.
3. Fixed-indexed universal-life insurance policy
Another, less-talkedabout option for paying for college—albeit a controversial one— is using cash-value permanent life insurance.
One type that some advisers like is fixedindexed universal-life insurance. Mike Windle, a partner and financial adviser at C. Curtis Financial Group, a financialplanning firm in Plymouth, Mich., recommends this option because of the flexible premiums and upside potential without the downside risk. To make this strategy work, the policy should be owned by the grandparent, with the grandchild as the insured, making the cost of insurance inexpensive, says Mr. Windle, who owns these types of policies and offers them to clients.
Having such a policy allows grandparents to contribute after-tax money in a lump sum—monthly, quarterly or annually. When the funds are used, they are considered a loan against the cash value of the policy. They are tax-free at distribution, and they don’t count as income or assets on the student’s Fafsa, Mr. Windle says.
He generally recommends fixed-indexed universal-life insurance policies to clients whose grandchildren are 8 years old or younger. The policies he recommends have no cost to the grandparent to withdraw funds (and withdrawals aren’t counted against the grandparent’s yearly gifttax limit) if the loans from the policy occur in the 10th year of the policy or later, Mr. Windle says. If grandparents take a withdrawal before the 10th anniversary, it could cost them about 2% of the loan, depending on the insurance company, he says. Though premium rates aren’t guaranteed, Mr. Windle says the additional cost for a child would be minimal and is likely to be offset in part by growth in the policy’s cash value.
Another benefit is that the money can be used for multiple purposes—it isn’t limited to education. And the policies have a death benefit if something happens to the child.
There are downsides to using life insurance as a vehicle for college savings, however, and not everyone thinks it is a good idea. An insurance policy can be pricier and the investment selections more limited than with some other options grandparents have for funding college, financial experts say.
Before purchasing a life-insurance policy for college-savings purposes, grandparents should consider the type of insurance and return on investment, as well as applicable costs, to ensure it’s the best option for their situation.
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Facial Recognition Tech Comes to Schools and Summer Camps
FACIAL RECOGNITION is no longer just being used to unlock iPhones, tag Facebook friends and scan crowds for security threats. It’s moving into summer camps, youth sports tournaments and schools.
At summer camps across the country, parents can opt into facialrecognition services to receive photos of their camper without having to sift through hundreds of group shots for proof that little Susie is having a good time climbing ropes. One facialrecognition software manufacturer has proposals in front of several K-12 public school districts to install the technology to help identify and track potential shooters on campus.
While commercial applications of facial-recognition software abound—and bear their own fair share of controversy—the fact that this latest wave is geared toward children has privacy experts and politicians urging parents and school districts to think twice.
Concerns over this precious data—children’s faces—range from accuracy to abuse. Could it one day be used for purposes other than that for which it’s currently intended?
In the movie “Minority Report,” biometric systems created for marketing are commandeered to hunt down citizens suspected of wrongdoing. There’s no evidence of this happening yet, but as science fiction goes, it’s not too far-fetched.
“We’re in the very early stages of commercial, nongovernmental use of facial recognition and we shouldn’t be waiting until harms occur to do something, we should be acting now to mitigate the harms,” said Nathan Sheard, a grass-roots advocacy organizer with the Electronic Frontier Foundation.
Threat Detection
Last year, the Lockport City School District in upstate New York became one of the first school systems in the nation to purchase facial- recognition software, which it began testing in June.
Here’s how it works, according to SN Technologies Corp., the Canadian firm that developed the software: School districts create a database containing photos of students and adults who aren’t permitted to be on school grounds.
The software is integrated into school cameras, and scans for a match. If one is detected, school administrators receive an alert. SN Technologies’ software can also detect a gun—if it’s in a person’s hand, not if it’s concealed—which results in a notification being sent to first responders. The company says that having information on who and where a shooter is could enable police to locate and stop a shooter more quickly.
The interest in the software drew concern from Monica Wallace, a member of the New York State Assembly. “The more I thought about it the more I realized how concerning it is that we don’t have any policies in place and that no one has given it any detailed thought before rushing forward,” the Democratic lawmaker told me.
She said one school district already has indicated it wants to use facial recognition for disciplinary purposes as well as threat assessments. “Is this going to be a surveillance state for our kids?” she said.
She introduced legislation to halt the implementation of facial recognition in New York schools until the state’s education department can conduct a review and establish guidelines for its possible use.
The use of children’s biometric data is coming under scrutiny by the Federal Trade Commission, which earlier this month launched a review of the Children’s Online Privacy Protection Act, a 1998 law that requires children’s websites to obtain parental consent before collecting, using or disclosing a child’s personal information. The FTC is now seeking comment on whether the definition of “personal information” should be expanded to include biometric data.
The makers of facial-recognition software argue that concerns about the technology are overblown because people don’t really understand it. For these companies, facial data isn’t captured and stored as a usable image, but rather as lengthy chains of numbers and letters that can only be deciphered by proprietary software. Developers argue the data would be meaningless to anyone who doesn’t have their model.
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Australia: Schools going backward with no plan for change
If more evidence were needed to demonstrate why our school education system is substandard, despite additional billions and so many government-mandated initiatives, look no further than the depressing submissions to the review of the 2008 Melbourne Declaration.
For 11 years it has been used as the key strategic road map to guide policy development at the state and commonwealth levels.
The declaration also has been employed by educational bureaucrats, education ministers and professional associations to inform the work of schools.
Given our retreating standards of literacy and numeracy, you’d expect the submissions would call for radical change.
Not so. The Australian Education Union argues that the document is still relevant; there’s no need for a review.
Predictably the union argues that to improve “equity and excellence”, additional billions must be invested, especially for “disadvantaged” schools, and that the National Assessment Program — Literacy and Numeracy tests must be abolished.
Ironically, NAPLAN is the only transparent and objective measure that can be used to evaluate and track school and system effectiveness.
The Melbourne Graduate School of Education is also hostile to NAPLAN. It argues that governments should “move away from a narrow focus of point-in-time high-stakes assessment” by adopting “best practice diagnostic and assessment tools and learning progressions”, otherwise known as formative assessment.
The stronger performing systems in Singapore, Hong Kong, South Korea and Finland stress summative assessment, in which students are marked against year level standards, there are consequences for success and failure, and students are ranked one against the other at key stages.
One of the many destructive ideas associated with outcomes-based education, an unproven curriculum model forced on Australian schools in the 1990s, is championing generic competencies and skills rather than established subjects and disciplines.
Instead of learning from our failures, submissions to the review of the Melbourne Declaration also stress competencies and skills associated with 21st century, lifelong learning. A time, supposedly, when the workplace will be “unpredictable, dynamic, ambiguous and complex”. Given the ever-increasing rate of “changes, particularly global and technological”, the Melbourne Graduate School of Education argues that learning should focus on students becoming “lifelong learners, critical, creative and enterprising individuals”.
Learning and assessment should focus on “social and emotional wellbeing with general capabilities and multiple forms of excellence celebrated”.
Apparently, to “prepare students for the future” the Australian Association for the Teaching of English believes it is no longer necessary to give students an appreciation of the Western literary canon.
Given the cultural-left’s long march through the education system, it comes as no surprise that several submissions recycle the usual cliches and pretentious phrases associated with politically correctness and groupthink.
The Melbourne Graduate School, after citing the UN Sustainable Development Goals, suggests education should “recognise our common humanity and shared guardianship of the planet and the need to continue working with others towards a better and more peaceful world as we create an innovative future”.
Cultural relativism is also promoted. Any future road map should recognise “Australia’s diverse cultural heritage” and ensure students demonstrate “ethical and respectful behaviour towards other cultures”.
But not all cultures are equal as there are some practices that are immoral, uncivilised and indefensible. The Australian Curriculum Studies Association also champions the belief that Australia is “diverse” and “multi-faith”.
Submissions to the review emphasise Aboriginal and Torres Strait Islander history and culture on the basis that indigenous history and culture are “a foundation of Australia’s culture, heritage and future”.
But Australia primarily is a Western, liberal democracy where our institutions and way of life are underpinned by Judeo-Christianity and epochal events such as the Renaissance, the Reformation, the Enlightenment and modernity.
Of greater concern is that while most submissions focus on equity and disadvantage, there is no acknowledgment that students’ performance is so dismal — especially among gifted students.
Even worse, the deluded argument is put that the Melbourne Declaration has been so successful that any new road map should be extended to include universities. As suggested by the Australian Catholic University’s submission, this would extend the dead hand of self-serving educrats and further undermine Australia’s tertiary system.
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