Re: college costs

[Robert <http://dummy.us.eu.org/robert>]

 > From: Flora  <http://profiles.yahoo.com/flora>
 > Date: Mon, 9 Jun 2014 05:27:40 -0400
 >
 > Could you gift them during their college senior year and subsequent years until 
 > their student loans are paid off?

I don't understand why you'd want to take out a loan at a certain interest
when you could get loans from us for 0%.  Doing a quick calculation, you'd
save about $12,663 over the 4 years.  What's more, the term could be
flexible.

Why do you think taking out student loans would be better?

The downside is that we would not able to lend more than $36,000 per year.
(Currently, we're redirecting this extra money towards prepaying off the
mortgage.)  The other downside, in the bigger psychological picture of
things, is that you'd have to stay in contact with us (i.e., paying us
back) over possibly a long period of time, which could be almost as
annoying as paying back an institution.

I'm not sure what your shortfall is (or will be?) and thus don't know your
need.  Is this why you're thinking about simply taking out student loans?

Of course, I am urging you go the loan route to save on interest paid to
some faceless entity, but doing some kind of gift thing later in their
school years might be an option.

 > On Jun 8, 2014, at 10:27 PM, ", Flora" <http://www.state.vt.us/~Flora.> wrote:
 > > 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 don't know why http://www.efile.com/tax/estate-gift-tax says $26,000.
Maybe it's from 2013 and someone forgot to update the web site.

In any case, the advantage of using a gift-as-loan is that (1) interest
wouldn't need to be charged and (2) there are no tax implications.

 > > 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 parentsâ?? 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 studentâ??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 Xanderâ??s financial aid. They responded with, â??It may.â?
 > >>> ? 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.
 > > 
 > > --
 > > http://dummy.us.eu.org/robert
 > > http://www.
 > > our-San-Jose-phone-number
 > > 
 >