They also will match the money that the parents save, up to one-half the cost of tuition. That's a tremendous incentive. It doubles the value of every dollar that the family puts aside. But the grandparents will greatly diminish the value of their wonderful gift if they add the money directly to the family's college savings accounts. That's because of the way the colleges figure out how much aid to give.
Student aid is based on a complicated federal formula.
The formula computes the amount that a family is expected to pay, based on the eligible income and assets of parent and student. It probably would include a free grant and a student loan. The more savings a family has, the less aid it normally will get. The size of the aid package also depends on whose name is on the savings account. Every year, the child is expected to use as much as 35 percent of it.