Helping Grandchildren Pay for College

  • It’s no longer uncommon to ask grandparents to help with sky-high college costs.
  • Your grandchild’s school of choice – whether public or private – probably costs more than you thought.
  • If you’re planning to contribute, you have options.

Grandparent generosity often includes college

Grandpa’s occasional grumpiness aside, the giving-grandparent archetype is alive and well. It’s more than gifts, restaurant bills, and birthday checks we’re talking about. Even when it comes to hefty college costs, grandparents are stepping up and contributing more money.

Unfortunately, some are sacrificing their own financial security in the process. Others may feel the pressure or desire to contribute toward the grandkids’ college dreams, but still wonder if it’s really worth the exorbitant price tag.

The college price tag, in fact, is often higher than expected.

With such a grand sum of your life savings potentially at stake, it’s bound to be a reality check, if nothing else.


The college price tag, in fact, is often higher than expected. Off the top of your head, how much would you guess four years of tuition, room, and board will run your grandchild at your alma mater or favorite school?

According to a TIAA-CREF survey, most grandparents guess it’s somewhere in the $30,000 to $75,000 range.1 The reality, according to College Board research, is right around $73,000, on average, for a public college and $188,000 for a private school.2

Do what’s right for you, too

Before signing away your life savings in the name of higher education, settle on a balanced approach in line with your financial resources and outlook.

A good first step is to talk with your grandchildren and their parents about your intentions and limitations. Explore possibilities, objectives, and boundaries together as a family. Even if these conversations start when the grandchildren are still quite young, they’ll emphasize the importance the whole family places on education.

The efforts may even trigger more conversations around money, savings, and education that often never happen between grandparents and grandchildren. This could help children – especially teenagers – understand the importance of saving for college and taking charge of their own financial futures.

Although 85% of surveyed young adults say they’d be open to such conversations with their grandparents, only 8% of grandparents say they’re likely to ever initiate them, according to TIAA-CREF.3

Funding options

If you’ve decided to contribute toward the grandkids’ college costs, explore your funding options first. Here’s a brief rundown of account types to consider:

529 plan* – If you have time on your side for an investment account to perform in the market, you may decide to contribute regularly to a 529 plan, one of the most tax-efficient types of educational funding plans. These plans offer tax advantages and may be attractive to grandparents wanting to lower the value of their taxable estate.

Although 529s are administered at the state level, you may choose a 529 offered by a state other than where you claim residence. Some states offer residents state-income-tax advantages; others don’t.

*Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 college savings plan. The official statement, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest.

Coverdell education savings account (ESA) – If you’re contributing $2,000 or less per child per year, you can do so within a potentially tax-free ESA account. Although Coverdells have lower contribution limits and impose income eligibility restrictions, they offer more investment options than 529s.

A good first step is to talk with your grandchildren and their parents about your intentions and limitations.

Custodial account – The Uniform Gifts to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts allow you to give or transfer assets into a custodial account for a minor without creating a trust. Like Coverdell ESAs, UGMAs and UTMAs offer more investment options than 529 plans. Unlike 529 plans and Coverdell ESAs, custodial accounts do not offer potential tax advantages.

A potential drawback of custodial accounts is the loss of control over them after the child reaches a specified age, typically 18 or 21. At this point, the child assumes full control over the account and can use the funds for anything – including noneducational expenses.

Regardless of which funding option you choose, you should heed annual gifting limits. You’ll also want to consider the potential effects of your choice(s) on your grandchild’s future eligibility for financial aid.

Next steps

  • Get the conversation going. Talk to your grandchildren about college dreams and savings.
  • If you plan to help out with college costs, find an education funding option that fits your needs and financial outlook.
  • Ask your Financial Advisor how a college savings plan fits into your investment strategy.

1, 3 Only 8 Percent of Grandparents Are Likely to Talk with Grandchildren about Money and Saving for College, While 85 Percent of Young Adults Say They Are Open to the Conversation: ; August 12, 2014.

2 Average Published Undergraduate Charges by Sector, 2017-18: