Encourage generous grandparents to help pay for college in the right way. Some students are fortunate enough to have grandparents with the resources and desire to help pay for their education. Unfortunately, some of the actions grandparents typically consider can reduce a financial aid package. As noted above, setting up a custodial account for a grandchild could potentially reduce a financial aid package. Some grandparents know they can write a check directly to an educational institution without incurring any gift-tax consequences.
Some grandparents establish trusts for their grandchildren.
But financial planner Mark Singer of Safe Harbor Retirement Planning in Lynn, Massachusetts, notes that financial aid officers can take a cynical view toward students with trusts. Because the trusts are in the children's names, trusts can also reduce aid the same way custodial accounts do. Stipulating that grandchildren can't get access to money held in trust for them until they reach age 25 or 30 does not stop colleges from considering the trust money part of the student's assets. The parents can then invest it or put it toward tuition payments. As Chany notes, grandparents could also consider helping students pay off loans after graduation.