High school seniors may be looking at graduation gifts as an opportunity to build up college coffers.
“For many students, it’s the largest chunk of money that they see physically passing through their hands,” says Tanya Van Court, founder and CEO of iSow.com, a website that allows young people to register for goals like a college fund.
The majority of students won’t have enough in savings to cover the cost of college, she says, so graduation money could help with smaller items — like dorm room expenses — or bigger ticket items, such as taking a bite out of tuition.
“I think that college is probably the best investment that a young person can make,” says Mark Blair, registered investment advisor and founder of Blair Wealth Management in Radnor, Pennsylvania. “I can’t think of a better use for the money.”
Adds Van Court: “All of that is money you are not going to have to take out in loans and repay later on when you get out of school,” she says.
Experts weigh in on how best to leverage graduation money for college.
[Learn some last-minute ways to beef up college savings.]
— Convey a message: Graduation gifts tend to come from a larger network of people than gifts for other special occasions, such as birthdays or Christmas. But friends and family may be more apt to spend money on a student if they understand why the graduate needs college money and how they plan to use it, Van Court says.
Van Court says people like to give “meaningful” graduation gifts — but sometimes this can translate into gifts that aren’t very useful, such as a fancy fountain pen.
“Money is a better gift,” she says, “but money applied to something that the giver can see as a real goal or a real need makes it a meaningful gift, not just a good gift.”
Websites, like Van Court’s Sow, can help students craft messages about why they need college money and give friends and family a way to contribute directly. Many websites for 529 plans, which are college savings plans with tax advantages, also have ways for friends and family of soon-to-be college students to give college money.
Charlie Shipman, managing principal at Weston, Connecticut-based financial planning firm Blue Keel Financial Planning LLC, says such platforms can be a convenient way to gather college money, but that users should be aware of potential extra fees for the service.
“It’s like crowdfunding for your college education,” says Shipman. “You can create your email list, send it out and you have an easy way to gather funds, but just make sure you know what you’re paying for.”
[Find out how to grow college savings fast.]
— Don’t make risky investments: Because graduation money comes so close to college, graduates intending to use it for college-related expenses should stay away from risky investments.
“If you’re getting money late in the game, and you’re starting a 529 plan, the last thing you want to do is put it into all stock investments to try to grow it, and then have some sort of big event occur that leads to a market drop,” Shipman says.
For instance, he says, if the graduate gets $10,000 and the market loses 20 percent quickly, that leaves only $8,000 to spend on college, a significant drop.
Because earnings in 529 college savings plans are only tax- and penalty-free if put toward qualified education expenses, one option for using graduation money is to put it toward college expenses that are considered nonqualified. This could be travel to and from school, a bike to use around campus or even a credit card for a trustworthy student, experts say.
[Get answers to four common questions about spending 529 funds.]
— Consider a deferred gift: Grandparents or other close relatives looking to make a major graduation contribution toward college could also consider delaying the gift to mitigate the impact on financial aid, Blair says.
A grandparent-owned 529 fund doesn’t count as an asset in the financial aid calculation, but it is counted as part of the student’s income the following year. Blair says if the grandparent owns a 529, he or she could wait to use it to pay the final year of tuition. That way, the student won’t have to worry about the impact of that income because he or she has already filed the last Free Application for Federal Student Aid, or FAFSA.
They could say, “Look, we’re going to pay for the final year of college, so plan accordingly,” Blair says.
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
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Leverage Graduation Gift Money for College Savings originally appeared on usnews.com
