RE: college costs

[", Flora" <http://www.state.vt.us/~Flora.>]

Loan or gift? The annual exclusion for gifts remains at $14,000 for 2014 
according to the IRS.gov website. This would mean that you and Noelle could "
gift" me up to $28,000. (As well, you could "gift" Tim up to $28,000.) 

I take back what I said earlier - upon further research, lending directly to 
the student is reported on the FAFSA. It is considered "cash support". I was 
looking at the application itself when I responded in my previous email.
https://studentaid.ed.gov/sites/default/files/2014-15-fafsa.pdf 

"The student reports any cash support he received, but if dependent he does not 
count his parents? support, with one exception: money from a non-custodial 
parent that is not part of a legal child support agreement is untaxed income to 
the student. Cash support includes money, gifts, and loans, plus housing, food, 
clothing, car payments or expenses, medical and dental care, college costs, and 
money paid to someone else on his behalf." 

"...a possible workaround is for the grandparent or other third party to give 
the money to the parents, who can then use to the money to pay the college 
bills without having to report it as cash support on the FAFSA."

http://www.fastweb.com/financial-aid/articles/3673-paying-the-college-directly-to-avoid-gift-taxes?page=2

I did go back and read the Application and Verification Guide for 2013/2014 "j. 
Money received" on page AVG-19. 
http://www.ifap.ed.gov/fsahandbook/attachments/1314AVG.pdf

Again, gift or loan? What are the expectations?

Cc: http://www.gmail.com/~flora; Noelle; http://profiles.yahoo.com/flora
Subject: RE: college costs

To: ", Flora" <http://www.state.vt.us/~Flora.>

Wow, awesome work!  This gives us a lot of options.

Noelle and I will discuss what we can do and how we'll do it.

Do you have any preferences?

A direct loan in the form of a gift, either to you (a.k.a. "the parents")
or to Alexander and Nicholas seems most appealing, because (1) we could
offer very favorable terms (0.0% interest and a very long term) and (2) it
wouldn't affect FAFSA.  (In that case, however, there would be a max
amount of $26,000 per year per person.  That would probably be enough, it
looks like.)

The 529 option seems the least appealing to me since someone would be
paying interest to some faceless entity.

 > From: ", Flora" <http://www.state.vt.us/~Flora.>
 > Date: Sun, 8 Jun 2014 21:02:37 +0000
 >
 > The Direct Subsidized and Direct Unsubsidized Loans both have an interest 
 > rate
 > of 3.86%, with a 1.072% loan fee.
 > https://studentaid.ed.gov/types/loans/subsidized-unsubsidized#
 > subsidized-vs-unsubsidized
 >
 > The VSAC loan has an interest rate of 5.85%, with a 0% origination fee - 
 > with
 > excellent credit and if you make make principal & interest payments while
 > enrolled.
 >
 > 
 > http://services.vsac.org/wps/wcm/connect/vsac/vsac/pay+for+college/funding+sources/loans/vsac_pay_fundingsources_loans_vsacfixedrateprivateeducationloanattributes
 > 
 >
 > I don't believe that lending directly to the student would affect the FAFSA. 
 > We
 > must report money received or paid on the student?s behalf on the FAFSA, but
 > not loans. Since we don't have to report loans on the FAFSA, this would not
 > affect financial aid.
 >
 > I was looking at "ways your relatives can help that will not have an impact 
 > on
 > the student's financial aid package:"
 > The relative can pay the money to the parents, instead of the student. Gifts 
 > to
 > the parents of a dependent student are not reported on the FAFSA. This 
 > website
 > states that this is "due to a quirk in the definition of untaxed income and
 > benefits." A relative can set up a Section 529 College Savings Plan where 
 > they
 > are the account owners and the student is the beneficiary. A gift can be 
 > made
 > to the student after the student graduates.
 > http://www.finaid.org/parents/budgetcutting.phtml
 >
 > I haven't talked with The Parents about this. They told me to talk directly
 > with you.
 >

 > Cc: http://www.gmail.com/~flora; Noelle; http://profiles.yahoo.com/flora
 > Subject: RE: college costs
 >
 > To: ", Flora" <http://www.state.vt.us/~Flora.>
 >
 >  > From: ", Flora" <http://www.state.vt.us/~Flora.>
 >  > Date: Sat, 7 Jun 2014 00:27:22 +0000
 >  >
 >  > Sorry it has taken me so long to respond. There is a lot going on right 
 >  > now
 >  > with work, Tim having guard duty, me having to get Holly on the bus in 
 >  > the
 >  > morning (going to work late and getting home late), and all of Holly's
 >  > activities.
 >  >
 >  > I hadn't thought much of the tax issue until you brought it up.
 >  >
 >  > On the IRS website, the tuition you pay for someone is not a taxable 
 >  > gift.
 >  >
 >  > 
 >  > http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes
 >  > 
 >  > #1
 >
 > Right.  That's for pure gifts (i.e., not an explicit nor implied loan).
 > Also, apparently, the payment has to be made directly to the college or
 > university with no intermediary.
 >
 >  > I've learned that the 529 doesn't really work for paying back student 
 >  > loans.
 >
 > OK.
 >
 >  > Both Nick and Xander each qualify for the below loans:
 >  > Direct Subsidized Stafford Loan 3,500.00 (for the 2014/2015 school year)
 >  > Direct Unsubsidized Stafford Loan 2,000.00 (for the 2014/2015 school year)
 >  > 
 >  >
 >  > In addition I was looking at The Vermont Advantage Student Loan:
 >  >
 >  > 
 >  > http://services.vsac.org/wps/wcm/connect/vsac/vsac/pay+for+college/funding+sources/loans/vsac_pay_fundingsources_loans_vsacfixedrateprivateeducationloanattributes
 >  > 
 >  >
 >  > Also, I called UMASS Amherst Financial Aid office regarding whether a 
 >  > higher
 >  > EFC would affect Xander?s financial aid. They responded with, ?It may.? 
 >  > That
 >  > was the only answer that they would give me. They said that we would need 
 >  > to
 >  > fill out the fafsa again in January and it would be determined after 
 >  > that.
 >  > Although, the financial award letters that we received for both kids said
 >  > that
 >  > the awards are renewable for four years. Our EFC would increase if our
 >  > income
 >  > increases, as well as if money is received or paid on behalf of a 
 >  > student.
 >
 > OK.  That's a very strange feedback loop.
 >
 > Do you have any ideas about what interest rate you're looking forward to
 > if (when?) you take out a student loan?
 >
 >  > Also, I was told that bills are due August 10th at UMASS Amherst. I asked
 >  > how
 >  > Xander can become a MA resident. It doesn't look like a possibility.
 >  > http://www.umass.edu/dean_students/undergraduateresidency/
 >
 > Good to know.
 >
 >  > Do you think that setting up a "pool loan" is the best option? How would 
 >  > it
 >  > work? What would the expectations and responsibilities be on all sides?
 >
 > Actually, I was reading further that, unless there are several parties
 > contributing, having a "pool loan" is not really better than just a plain
 > 'ol loan.
 >
 >  > Let me know what you think.
 >
 > I was also discussing with Noelle the option of max'ing out a non-taxable
 > gift contribution as "joint givers".  See, for example,
 > http://www.efile.com/tax/estate-gift-tax/ .  That would effectively allow
 > us to make a loan of $26,000 per year.
 >
 > And, now that I think about it, if loans (in the form of a gift) were made
 > directly to Alex and Nicholas, it could be to up $26,000 for each.  The
 > terms of the loan could be made very flexible, then, since these would be
 > "gifts" and the IRS doesn't have to be involved at all.
 >
 > Do you know how lending directly to the students would affect fafsa grants
 > and loans?  (That seems a bit murky right now.)
 >
 > Have you talked with The Parents about this?  Just curious.

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