What to Know if You're a Grandparent Paying for College

You can pay for your grandchildren's college expenses with tax-deferred accounts.

You'd probably do anything for your grandchildren, and that just might include paying for college. If this is a possibility for you, you should know what resources are available so your grandchildren can make the most of your generosity.

529 Plans
One of the best options you have for setting up a college savings account for a grandchild is the 529 plan. These savings plans vary by state and are tax-deferred accounts that allow you to manage your own investments. The money in a 529 plan is not taxed when withdrawn as long as it is paying for college or expenses associated with higher education. Setting up a 529 plan savings account allows the beneficiary to use the money in the account at eligible institutions, while the prepaid 529 plan pays for future semesters at the current price at certain institutions.

Coverdell Education Savings Account (ESA)
You may also choose to start a Coverdell Education Savings Account (ESA) for your grandchildren. Though contributions to a Coverdell ESA usually cannot exceed $2,000 a year, the money is tax-deferred. If you are interested in starting one for a grandchild, you should know that the money is not just restricted to higher education expenses, but can be used for elementary and secondary school expenses as well. There are, however, age restrictions and withdrawal penalties if money is taken out for uses other than education.

If you making a decision about paying for college or even just supplementing your grandchildren's education expenses, this might be a good time to consult a financial planner. A professional can help you make a plan for saving for your grandchildren's education, and they can also help you plan for unforeseen financial situations like medical emergencies.

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Many different types of federal financial aid are available, including Pell Grants, Perkins Loans, Stafford Loans and PLUS Loans, so learning about the various options is an essential first step in any strategy for financing a college education.

A student can expect to qualify for a Federal Pell Grant if he or she meets certain conditions set forth in the application process. Generally, Federal Pell Grants are awarded to families who apply for a Pell Grant with incomes of less than $20,000, although there are exceptions based on a student's total criteria.

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A Federal Stafford Loan is a loan structured under the Federal Student Loan Program that allows undergraduate and graduate students to borrow money to attend college. They are designed to supplement a student's personal finances and family contributions to higher education. 

A Federal Perkins loan is one of many ways in which the government offers funds so that students with financial needs can attend college. This federal loan program is available from the U.S. Department of Education and helps with the cost of undergraduate programs and graduate programs.

Going into debt while you're in college is frighteningly easy. With the demands of your classes and a new social life, you might find that swiping that credit card is the easiest way to get the things you want and need. Rather than letting your credit card bills pile up, follow these tips for minimizing your debt while you are in college.

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