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Why Your Grandparents Could be Your Meal Ticket to College
Featured Author:
Mark Kantrowitz
As a nationally recognized financial aid expert and publisher of FinAid.org, Mark has been called to testify before Congress about student aid on several occasions.
He is interviewed regularly by major news outlets, from the Wall Street Journal, New York Times, USA Today, to MSN, CNN, NBC, ABC, CBS, CNBC.
Mark is the author of four books, including two about student aid. His most recent book, FastWeb College Gold, was published by Harper Collins in September 2006 and is a step-by-step guide to paying for college.He is also on the editorial board of the Council on Law in Higher Education, a member of the board of directors of the National Scholarship Providers Association and a member of the board of trustees of the Center for Excellence in Education.
Mark holds a PhD in computer science from Carnegie Mellon University (CMU) and holds Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU.
More articles from this author:
Mark Kantrowitz / Publisher of FinAid and FastWeb
April 21, 2009
Student Loans
Grandparents are not eligible to borrow from the Federal Parent PLUS loan program unless they have formally adopted the grandchild. A legal guardianship is not sufficient.
Grandparents can, however, cosign private student loans on behalf of their grandchildren. Yet they should be cautious about cosigning on any loans, as this makes them just as responsible for repaying the loan as the student borrower. The lenders use fairly minimal credit underwriting standards for cosigners, such as a minimal threshold on annual income. They do not currently use debt-to-income ratios. This means that a grandparent on fixed income might end up obligated on private student loans for amounts that are far greater than what they can afford to repay. If the student defaults on the loan, or is even a month delinquent, the lender can seek repayment from the cosigner. This may put the grandparents in a difficult financial situation.
Roth IRA
Grandparents who own a Roth IRA can name their grandchildren as primary beneficiaries. While the Roth IRA will be included in the grandparent’s taxable estate and so be subject to federal estate tax, in many cases the Roth IRA will pass to the grandchildren tax free if the total estate is less than the unused portion of the unified credit. The grandchildren can then avoid the 10% early distribution penalty and withdraw earnings tax-free even if they are under age 59-1/2. (For all distributions to be tax-free, a Roth IRA must have existed for at least five years before the distribution. Otherwise the earnings the accumulate after the contribution to the Roth IRA will be taxable.) Usually the grandchild must take a distribution of the entire amount by the end of the fifth year following the previous owner’s death. But until the grandchild takes a distribution, the Roth IRA is disregarded as an asset on the FAFSA. Distributions will count as untaxed income on the FAFSA, affecting the subsequent year’s federal student aid eligibility.
galindomunoz
about 1 month ago
didnt help one lil bit
SarahH287
about 1 month ago
is this a news type article or just another plug for fastweb?
mrobeng
2 months ago
Student loans
ShanitaH4
2 months ago
did not help
NullN102804
3 months ago
Not that helpful. I am registered on FastWeb and all I get is junk mail and offer to go back to school from so many colleges and universities and trade schools instead of authentic applications for scholarship for my kids. I think this financial aid business is nothing but scrams.
lyndrey
5 months ago
somewhat helpful