Can Grandparents Deduct College Tuition?

Featured Stories

Filter By Categories

If grandparents will be helping with college tuition, there may be gift tax implications.

Many students and families have several methods to help pay for college: grants, scholarships, student loans (which can be co-signed by any adult, including a grandparent), college savings plans, and personal gifts. Monetary gifts to help pay for college, especially from grandparents or other family members, sound great at first. Who wouldn’t want a gift of money for college, no strings attached?

Note, though, that depending on the size of the gift and the method of payment, there may be tax implications and/or an impact on financial aid awards. If you’re planning to have grandparents help pay for college, here’s what you need to know.

Note: The following tax information is relevant as of spring 2019 and intended for informational purposes only. If you have questions about your specific circumstances, such as eligibility for a specific tax deduction, consult a licensed tax professional.

Contribute to a 529 Plan

529 plans, established in the mid-90s, are tax-advantage savings vehicles that enable families to put money away for future college expenses. While many parents have established 529 plans on behalf of their children, they’re not necessarily the only contributors: Many grandparents and relatives often contribute.

When grandparents want to put money in their grandchild’s 529 college fund, they may not necessarily be able to do so directly. Look at the regulations regarding 529 contributions for the specific account. In some cases, grandparents may be able to deposit money directly to the account on behalf of the benefited student; in other cases, only the account holder may make deposits. Additionally, depending on residency status, in-state contributors to qualifying 529 plans may also be able to request a state tax deduction or credit.

In 2019, individuals can give up to $15,000 to another person and not be subject to the gift tax. And if you put the monetary gift into a 529 plan for use as qualified education expenses, the money won’t be taxed as income for the grandchild or subject to withdrawal penalties. (That point is moot, however, if the money is used for non-qualifying expenses or withdrawn early.) So if each grandparent makes a maximum individual contribution, that’s a potential $60,000 untaxed gift (from four grandparents) to go toward college.

Additionally, grandparents can now make larger one-time contributions to 529 plans, spread out over five years, to take advantage of new tax breaks. Speak with a CPA or licensed tax professional to see if this option makes sense for your specific circumstances.

Pay Tuition Directly to a College or University

Grandparents can also elect to write a check directly to their grandchild’s college or university to cover tuition--and as long as the check is paid directly to the school, no gift tax will be incurred.

Paying the college directly also enables grandparents to make a secondary gift to their grandchild in the same year without being subject to gift taxes. Under this scenario, let’s say granddaughter Madison is a freshman at UCLA and needs help paying for college. The grandparents can write a $15,000 check payable to UCLA, and a $15,000 check directly to Madison, without tax penalties.

When a grandparent writes a check, however, it gets reported on the FAFSA as untaxed income—which will impact financial aid awards. Speaking to the Wall Street Journal, Mark Kantrowitz of says, “a direct payment to a college by anybody other than the student’s custodial parent or parents will count as cash support. This can have a severe negative impact on eligibility for need-based financial aid.” So if you’re planning to have grandparents pay for tuition, it may result in less need-based money from the federal government and/or the college itself.   

Give Cash

Let’s not forget about giving cash for college, as many grandparents take the tried-and-true route of slipping cash or a check in the graduation card. Modest amounts (e.g., a few hundred dollars) won’t be an issue, but if the plan is to make a substantial cash gift, be aware of potential penalties. (See the gift-tax limits and FAFSA impacts we’ve already discussed.) Additionally, there may be generation-skipping transfer (GST) tax consequences, where taxes are levied for gifts made to individuals more than one generation below the gifter.

To avoid issues with cash gifts to help pay for college, grandparents can gift cash to parents instead of grandchildren, as gifts to parents don’t need to be reported as income on the FAFSA, according to Mariner Wealth Advisors, a Kansas-based advisory firm. Alternatively, grandparents can withhold cash gifts until their grandchild graduates from college, and then use the gift toward student loan payments.


If you’re planning to use gifts from grandparents to help cover the cost of college, make sure everyone is well aware of all financial considerations before accepting. You’ll want to maximize the monetary value of each gift, while minimizing all potential tax and financial aid award penalties.


Sorting through all of this information and what it means for you?

We know it can be overwhelming. Enter your email to get our one-page summary, including the pros and cons of each method - so you can make the best decision:




Sign up for updates

Popular Tags

Financial Aid and Scholarships* Cost of College* paying for college financial aid FAFSA grants and scholarships Student Loans* Saving for College* federal student loans college tuition 529 plan cost of attendance college financial planning expected family contribution financial aid award private student loans taxes room and board college savings plan on-campus housing Salary and Career* college expenses federal financial aid budgeting for college edmit hidden gems merit scholarships parent PLUS loan merit-based financial aid private universities public universities CSS profile college applications college costs edmit team education expenses financial need living expenses application fees financial aid appeal income off-campus housing loan forgiveness affordable college college majors student loan assistance work-study application fee waivers degree programs edmit scholarship institutional aid loan repayment career choosing a college choosing a major in-state tuition net price prepaid tuition plans SAT budget college search free tuition international students internships need-based financial aid need-blind colleges private scholarships qualified higher education expenses repayment plans southern colleges tuition discount tuition guarantee tuition payment plans 401k ACT UGMA UTMA college ranking systems college visits credit score discretionary income education savings accounts fees full ride scholarship grants health insurance options investment ivy league schools meal plans midwestern colleges need-aware colleges out-of-state tuition retirement savings school-based scholarships student loan debt western colleges 568 presidents group Inversant MEFA applying to college asset protection allowance best price campus life college advisor college deposit college spending concurrent enrollment cost by region cost by state crowdfunding educational expenses esports fee waivers financial literacy fraternities and sororities full tuition gap year home equity loan income share agreements liberal arts degree line of credit medical expenses military benefits new england colleges out-of-state students percent need met private college consultant saving small business standardized testing state aid state schools student bank accounts student organizations title IV schools travel expenses tuition decreases tuition increases tuition insurance tuition reciprocity undocumented students