So parents don’t have to pay for college, but how much should they consider if they are well able to afford it and don’t want to saddle their kid with debt and hard feelings. Interesting article.
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I took issue with the misleading half-information offered by the author. For example, suggesting that Tia’s parents could give her a gift to help her pay off her loans (that the parents co-signed, tho that info is only offered at the end of the article) and then warning about the “$19,000 gift exclusion” rule.
Issues:
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The 19,000 gift exclusion is per person, so Tia’s parents can give a combined amount of $38,000 per year without running afoul of the rules.
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You can even give more than that a year, as long as the gift giver then files the appropriate tax forms to indicate how much money is being gifted out of their lifetime exclusion amounts.
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The whole article is frustrating! Although yes, the parents should have talked with their D before she chose her college/took out $90K in loans.
The author also said this:
“Students from families who earn above a certain income threshold won’t qualify for federal student aid”, which isn’t true because all students qualify for the federal direct student loans regardless of income (although some loans may be subsidized, based on income.)
It’s also not clear if the parents co-signed any of the non-federal direct student loans that their D already has. If so, if they pay that off, I don’t think that counts as a gift or is subject to gift limits (IRS tax code 2503 I think exempts education costs)…but I’m not 100% sure I’m interpreting that correctly… @kelsmom or @belknappoint?
Regardless, I agree with you, if they don’t go over the annual limit, there’s no issue at all. And even if they paid it all in the same year, not an issue until (or if) they ultimately go above the lifetime exclusion amount.
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The easiest way to give a large amount in a short time…as a gift…if one wants to do so…give one year allotment in December, and the next year allotment in January. That’s $76,000 if both parents are gifting the max that doesn’t require the form be filled out.
If the gift exceeds that amount in one payment…it’s really easy to do the form. It only gets complicated if you give multiple gifts throughout the year.
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At least on the level of what we might expect in short magazine articles, I think that this article is actually relatively good. To me the main point is that financing university is something that parents and students need to be clear about up front, and that parents need to plan for well before the student starts university.
For example the article says “This, perhaps, is the mistake that James and Nola made by not having honest conversations with their daughter long before she ever started applying to colleges. They left it too late, and now that window for Tia has closed”. Exactly. The family needs to figure out the budget early in the process.
I think that several of us on this web site keep making this same point.
It is also true that just because a family is well above the median in terms of income and assets, does not necessarily mean that they have disposable money in the bank in sufficient quantity to pay for the current cost of education in the US.
I have sympathy for any student who graduates university with a bachelor’s degree and $90,000 in debt. When deciding where to attend university the high school senior is not the one who is expected to understand finances. We really can’t expect a high school senior to understand what this means. In planning for university costs, and in setting a budget, the parents have to act as “the adults in the room”. They are after all the adults.
This might mean that the student as a high school senior is frustrated with the budget limits that the parents set. This might mean that 5 years later the recent university graduate thanks their father for setting restrictions 5 years earlier.
The article implicitly brings up the point that some parents are either close to retirement or actually retired by the time that their child reaches university. This of course sets further constraints on what is reasonably possible. This is a very real issue for some of us.
Frankly when reading articles about finances in magazines or on-line I have relatively low expectations. To me this article exceeds my admittedly low expectations.
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It suggests she should’ve filled out fafsa to be eligible for federal student loans, which of course I assume she did since she obviously needed loans. They suggest she could’ve taken out private loans, again, she obviously did with a parent co-signer.
concur.
Disagree. The author purposely ignores how the student was able to amass $90k in undergrad debt. Did the college loan it to her on her own signature? Did she take 5-6 years to graduate? If the parents co-signed with the understanding that Tia would pay it off, then that’s on her, and she has no reason to be upset. If the parents said that they woudl pay it off after graduation, then, yeah, the well-off 'rents are changing their tune. If that’s the case, not much worthy of sympathy IMO. And a much different article.
I agree that should have been addressed. We don’t know if she took the $27k in federal direct loans, or if the parents (or someone else) co-signed all or part of it. There are colleges and companies that will loan to students with no co-signer. One of the companies that does this is a CC partner, called Ascent Funding. The companies that do offer no cosigner loans to college students charge high interest rates.
I agree it is pretty strange they don’t actually explain how the debt came about. But I also agree it is regrettably common for a lot of families to get shockingly far into this process without really understanding their costs or their options for paying. So I also see the value in even a flawed article that tries to draw attention to this issue and get parents started early.
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