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The unique role of a grandparent in a child’s life is one of witness, wisdom, and encouragement. From their first teetering steps and babbling words, through holiday gatherings, little league games, music concerts, and graduations. While the grandparent-grandchild bond is primarily an emotional one, many grandparents consider, at one point or another, extending their support in a financial capacity as well. This is especially true when it comes to saving for college. Higher education can be an incredible way for your grandchildren to pursue their intellectual and creative passions and set themselves up for a stable and successful career.

If your own children attended college, whether that was a decade or two ago or more, you may be alarmed to see how different the cost of higher education is today. If your grandkids will be the first generation to attend college at all, you may be hesitant about the magnitude of the investment. Every family’s financial situation is different, so we recommend having an open conversation with your children, as well as your grandchildren, before making any large financial decisions or contributions.

Whether your grandchildren are current college students or newborns, there are a variety of smart, tax-friendly options for contributing to their college educations. Below, we’ve detailed some of the best approaches for grandparents who want to help their grandchildren save and pay for their college degrees.

How Can Grandparents Help Pay for College?

529 Plans

Also called , 529s are one of the most common savings options for grandparents who want to help pay for college. There are two main types of 529 plans: prepaid tuition plans (which allow you to purchase credits through a particular institution) and education savings plans (which can be used for tuition, fees, room and board, supplies, and other expenses).

529s are a popular savings option because distributions are tax-free as long as they are used for qualifying educational expenses. Grandparents have the option of opening a 529 plan themselves on behalf of a particular grandchild, or contributing to a parent-owned plan. As of 2025, an individual can contribute up to $19,000 per year to any beneficiary without incurring the gift tax (for married couples, the limit is $38,000 per beneficiary). There is also an option to “superfund” a 529 by frontloading five years’ worth of contributions as a lump sum of up to $95,000 (or $190,000 for couples).

529 plans are a particularly smart option if your grandchildren are still young, because you will have the ability to contribute to and grow the fund over time, before they begin college. As with any investment, there can be some , so it’s worthwhile to consider your financial situation as a whole.

Direct Tuition Payments

Making tuition payments directly to the institution is another tax-friendly option for grandparents who want to help pay for college. Unlike other large payments or purchases, direct tuition payments on someone else’s behalf are not considered “gifts” for tax purposes. This means that you could contribute any amount towards your grandchild’s tuition without triggering the annual gift tax limit of $19,000. It’s worth noting that this gift tax exemption also applies to direct tuition payments for elementary and secondary school, as well as medical expenses paid directly.

Savings Bonds

Gifting your grandchild US Savings Bonds is a relatively easy and safe investment in their future education. Bonds can be or at your local bank, and offer guaranteed interest if they are held to maturity. Gifting bonds to your grandchildren starting at a young age can set them up with a decent nest egg for educational expenses by the time they are ready for college.

Unlike some other kinds of investments, bonds are unlikely to gain a significant amount of value beyond the initial investment. Also, unlike educational savings plans that incentivize spending the funds on qualified educational expenses, there is no guarantee that grandchildren will use their savings bonds to pay for college. Even so, bonds can be a simple and safe way to contribute to your grandchildren’s college savings, especially if the more significant contributions mentioned above are out of your personal financial range.

Coverdell ESAs

(ESAs) are another form of educational savings plans, geared towards families with lower incomes. Like 529s, distributions are tax-free as long as they are used for qualified educational expenses. Unlike 529 plans, there are some to both the annual contribution amount and the annual income of the account owners and contributors. Annual contributions are capped at $2,000 per beneficiary (this is a combined total for parents, grandparents, and all other contributors in a given year). This $2,000 cap only applies to account owners with incomes less than $190,000 (for couples) or $95,000 (for single filers). The cap gradually decreases for incomes up to $220,000 (for couples) or $110,000 (for single filers). Anyone with income above those levels is ineligible for either owning or contributing to Coverdell ESAs.

Coverdell ESAs are a worthwhile investment for those with incomes under the low end of the above range. Grandparents who want to help pay for college can also contribute to parent-owned ESAs as long as their incomes fall within the eligibility requirements. It’s worth noting that the $2,000 cap applies to all ESAs in a given beneficiary’s name, so opening an additional ESA on behalf of your grandchild wouldn’t necessarily be more beneficial than contributing to an existing account.

Student Loan Payments

An additional option for contributing to college expenses is to help pay off your grandchild’s student loans after their graduation. There are two tax-friendly ways to assist your grandchildren with student loan payments. If you have a 529 plan in a grandchild’s name, up to $10,000 from that account can be used towards student loan repayment. Alternatively, direct payments made to the lender qualify for the gift tax exemption, which would allow you to pay off a higher amount if you are able.

Hire a financial planner or college admissions counselor

Another unique way to contribute to your grandchildren’s college expenses is to hire a financial planner or college admissions counselor for your children and grandchildren to work with. While it may not be as direct a contribution, this kind of gift has the potential to save your grandchildren thousands or tens of thousands of dollars. A financial planner can help your children make the soundest savings and investment decisions to prepare for imminent college expenses, while a college admissions counselor can ensure that your grandchildren are applying to a well-rounded list of best fit schools (including financial safety schools) and are aware of all of the financial aid options available to them.

We do recommend talking with your children about these options before hiring anyone, since they may very well have their own financial planner or college counselor already.

How Will My Contributions Impact Financial Aid?

In addition to thinking about the tax implications, it’s also important to consider how different contributions can affect your grandchild’s financial aid. The vast majority of colleges and universities in the United States use FAFSA (the ) to calculate students’ financial aid packages. But some schools, particularly private schools, also use the CSS Profile and/or their own formulas to award aid.

FAFSA

• FAFSA uses information about parents’ and/or students’ income, assets, and federal benefits eligibility to calculate their Student Aid Index (SAI). Depending on the SAI, students can be eligible to receive Pell grants, work-study, and/or federal loans.
• According to the “grandparent rule,” students aren’t required to report untaxed income (such as a grandparent’s 529 or ESA) on their FAFSA, so these types of contributions won’t affect their SAI or any need-based aid they might receive.
• Cash gifts of up to $19,000 per year, given to parents instead of directly to a student, don’t have to be reported as income on FAFSA.

CSS Profile

• The CSS Profile, unlike FAFSA, still asks about major financial contributions from people other than parents, so students do have to disclose a grandparent-owned 529 or ESA. While most schools don’t take this into consideration for their initial financial aid awarding process, it does have the potential to impact students’ eligibility for institutional grants and scholarships, on a school-by-school basis.
• If you have any questions about how a specific school handles these kinds of income reports, you can call a school’s financial aid office directly to inquire about it.

What Else Can I Do To Support My Grandchildren’s College Education?

We recommend speaking with a financial advisor before making any large decisions, regarding this or any other investments or financial changes. There are always risks to consider with any investment. It’s wise to discern whether contributing to your grandchildren’s college funds has the potential to deplete your own retirement savings or impact your estate and inheritance plans for other family members.

Remember, there are many significant ways to contribute to your grandchildren’s lives (in college and otherwise!) beyond helping pay for college. Grandparents who support their grandchildren on an emotional and practical level can be just as impactful, if not more so. For one, a family’s financial situation never impacts a student’s ability to receive merit-based aid. Encouraging school-age grandchildren to pursue their passions and excel academically could lead to clearer goal-setting and even merit-based scholarships down the line. If your grandchildren are attending college near you, providing them with transportation, meals, outings, or a quiet place to study and decompress could be a great option. Last and certainly not least, providing encouragement, advice, and an open line of communication for your grandchildren to express their struggles and accomplishments is one of the most meaningful gifts of all.

Additional Resources

• FAFSA Income Limits: Is There a Cutoff in 2025?
• Cost of Community College vs. 4-Year Colleges: Real-World Examples  
• Average Merit Aid
• Need-Based Financial Aid (Grants by Institution)