Gift Aid vs Self Help Aid For College

College tuition can be costly whether you are seeking an undergraduate and graduate degree, attending an out-of-state public university, or taking classes at a private university.

If you do not have adequate savings to pay for classes, room and board, food, travel and other necessities, then you may be considering how to pay for college.

The costs of attending college continue to rise each year for both public and private colleges and universities. The average tuition and fees at a public in-state college was $9,687 and at or private schools it $35,087 for the 2020-21 school year. Obtaining financial aid is one way students can afford to attend college.

One common type of financial aid is called gift aid and typically comes in the form of federal and state grants and a wide range of scholarships that are given by private donors, foundations, non-profit organizations and even the universities themselves.

These grants and scholarships do not have to be paid back, which is helpful for students who are on a tight budget or are considering obtaining a graduate degree.

Another type of aid is called self help aid and usually comes in a form of work study programs and student loans. Some work study programs are sponsored by the federal government and they provide part-time jobs for students who need help paying their tuition. These jobs can be either on the campus of the college or university or off campus nearby.

Self help aid also includes federal student loans which have to be paid back after a student graduates.

There are advantages and disadvantages of both gift aid and self help aid. Undergraduate and graduate students may only qualify for one type of aid, depending on their financial circumstances, where they are obtaining their college degree or other factors.

What Are The Pros and Cons of Gift Aid?

Grants and scholarships are considered gift aid. One common form of grants are called Pell grants. These are grants provided by the federal government and Pell grants are given to undergraduate students who have demonstrated financial need.

The maximum federal Pell grant award is $6,345 for the 2020–21 award year (July 1, 2020, to June 30, 2021), but amounts can change annually.

The main drawback of gift aid is that you may not know what amount you will receive and you may need to supplement paying for college by seeking more scholarships and grants or getting a part-time job.

Federal work study programs are available for both undergraduate and graduate students to help them pay for tuition and other educational costs. The program’s jobs are related to the student’s course of study and also include community service work.

Both full-time or part-time students may qualify for part-time employment while they are enrolled at their university or college and it is available to undergraduate and graduate and professional students who demonstrate financial aid.

The work study programs are operated by a college and university financial aid office and you will receive at least the federal minimum wage. These jobs are available both on-campus and off-campus which can be beneficial for students who do not have other means of transportation.

Students who work off campus typically work for a nonprofit organization or a public agency and the goal of the job is geared to be in the public interest. The number of jobs is limited, so students should apply early to ensure that they have a position for the following academic year.

Federal and Private Student Loans

Another type of self-help aid are federal and private student loans. Federal student loans are based upon the financial need of a student and their family. They are either subsidized or unsubsidized direct loans and may offer lower interest rates than private loans. One drawback is that the federal government will limit how much money you can borrow.

Undergraduate students may qualify for subsidized loans that are given based on their financial need. One benefit is that the federal government will pay the interest on these loans while you are attending school or at least taking classes half-time, during your grace period or when you have deferred the loan.

Both undergraduate and graduate students may qualify for unsubsidized loans and they are not based on financial need. These loans accrue interest while students are taking classes, during the loan’s grace period, or when you have deferred the loan.

Private student loans can be used to help make up the gap in what is needed to pay the remainder of tuition or living expenses. While both federal and private student loans may help students pay for their tuition; they must be repaid once a student graduates.

If you do not complete your course study and do not receive a degree, the student loans still have to be repaid.

Federal student loans have protections that private student loans do not offer. Students who have received federal student loans can seek several options after graduation to repay their loans including income-driven repayment programs.

Federal student loans also offer borrowers’ the ability to put loans in forbearance or deferment, allowing them to temporarily pause payments in certain situations.

Some borrowers will choose to refinance their federal student loans into new private student loans. But this option means that you lose the protection of the federal repayment plans. Private student loans have both fixed and variable interest rates.

Fixed interest rates are beneficial for people who want to know the exact amount of their loans each month helping them to budget more easily. The interest rate on variable student loans are sometimes lower than fixed rates but that means your payment amounts can fluctuate from month to month.

Shopping around can help you find the best private student loan that fits your financial needs and the amount that you can repay each month.

Qualifying For Gift Aid or Self Help Aid?

Qualifying for either gift aid or self help aid might depend on your financial circumstances. Students may want to apply early for grants, scholarships, work-study programs and student loans.

completing a FAFSA®, or Free Application for Federal Student Aid. This application must be completed every year.

Some states and colleges may have their own FAFSA deadlines , so double check to avoid missing any. Missing a deadline can mean forgoing some financial aid.

While some gift aid such as scholarships are given to students based on merit, grades or other accomplishments, grants, work study programs and student loans are typically based on your financial needs and the cost of tuition at your university.

Some universities use data from the FAFSA to determine gift aid like scholarships too. Students can also apply for scholarships and grants that aren’t associated with the FAFSA®.

Private Student Loans with SoFi

In some cases gift aid and federal aid aren’t enough to help students pay for their tuition. In that case, some students may consider private student loans.

SoFi offers private student loans with no late fees or origination fees with flexible repayment options. There are also interest rate discounts for eligible SoFi members.

Interested applicants can find out what rate and terms they could pre-qualify for in just a few minutes. Learn more.

SoFi Student Loan Refinance
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


UGMA vs. UTMA Account – Which Is Better to Save for My Child’s College?

For many people, a college education is crucial for their career prospects. Yet college is an expensive endeavor. According to the National Center for Education Statistics, for the 2016 – 2017 academic year, undergraduate tuition, fees, room, and board were estimated to run $17,237 at a public institution, $44,551 at a private nonprofit institution, and $25,431 at a private for-profit institution. For that reason, many parents start saving for their child’s college education while that child is still in diapers.

There are several ways to save for education. People often think of 529 plans when it comes to saving for college, but you can also use Uniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts. Each account has different benefits and drawbacks. Before choosing how to save for your child’s education, learn more about how these accounts work and what features they offer.

529 Plan, UGMA, & UTMA Defined

Before delving into the pros and cons of these accounts, it pays to understand what each account is.

529 Plan

A 529 savings plan is a tax-advantaged account named after Section 529 of the Internal Revenue Code. These accounts help you save for education. Money in the account accumulates tax-free, and distributions are tax-free as long as you use the money for qualified education expenses.

Qualified expenses include:

  • Required tuition and fees
  • Books, supplies, and equipment
  • Computers, peripheral equipment, software, and Internet access
  • Room and board for students who are enrolled at least half-time

Initially, 529 plan beneficiaries could only use the money for higher education expenses. But in 2017, the government expanded the definition of qualified expenses to include up to $10,000 annually in K-12 tuition.

UGMA & UTMA Accounts

In most states, children under the age of 18 don’t have the right to contract, so they can’t own investments. At one time, that meant parents who wanted to transfer assets to a child for their college education had to hire an attorney to establish a trust.

The UGMA and UTMA made these transfers a lot easier. The UGMA established a simple way for minors to own securities such as stocks, bonds, and mutual funds. The UTMA is similar but also allows minors to own other property types, such as real estate, fine art, patents, and royalties.

Now, parents, grandparents, and other family members can open a UGMA or UTMA custodial account at a bank or brokerage. When they open the account, they have to provide the name and Social Security number of the minor and appoint a custodian who is in charge of managing the money in the account until the child reaches the age of majority (typically 18 or 21, depending on the state).

Differences Between 529 Plans & UGMA or UTMA Accounts

UGMA and UTMA accounts as well as 529 plans provide ways for parents and other adults to help save for a child’s education, but there are several differences.

Use of the Account

You can only use 529 plans for saving for education. You can always withdraw money in the account for other purposes. But if you don’t use the funds for qualified education expenses, you’ll face some tax consequences: You can withdraw the amount you contribute tax-free, but the earnings portion of the distribution is taxable at your ordinary income tax rates. You’ll also owe a 10% penalty.

But you can use funds in a UGMA and UTMA for other purposes.

Tax Advantages

A 529 plan has an advantage over UGMA and UTMA accounts when it comes to tax-advantaged growth.

In a 529 plan, you don’t have to worry about paying taxes on earnings within the account since the funds grow tax-free.

In a UGMA or UTMA account, you may have to pay taxes on earnings, even if you don’t withdraw money from the account. You don’t have to worry about paying taxes if the child’s income is $1,050 or less. Above that amount, the IRS taxes income between $1,050 and $2,100 at the child’s tax bracket and income above $2,100 at the rate for trusts and estates, which could be a lot higher than the child’s tax rate.

For 2019 through 2025, the tax brackets for trusts and estates are:

If taxable income is: The tax is:
$2,600 or below 10% of taxable income
$2,601 to $9,300 $260 + 24% of the amount over $2,600
$9,301 to $12,750 $1,868 + 35% of the amount over $9,300
$12,751 and above $3,075.50 + 37% of the amount over $12,750

Tax Filing Requirements

One challenge parents often run into with UGMA and UTMA accounts is tax return filings. With a 529 plan, the plan’s earnings don’t impact either the parent’s or child’s tax return since the account is allowed to grow tax-free. Once you start taking money from the account, as long as you use it for qualified education expenses, you simply report those nontaxable distributions on your annual return.

UGMA and UTMA accounts can be a little more complicated. For most people, these accounts are hassle-free during the saving years, as they rarely generate enough interest and dividends to necessitate filing a tax return for the child. If the earnings within the account are over $1,050 for the year, the parents may be able to report the child’s income on the parents’ return by attaching Form 8814 to their Form 1040.

The parents can make this election as long as the child meets all the following conditions:

  • The child is under age 19 (or under age 24 and a full-time student) at the end of the year
  • The child had only interest and dividend income
  • The child’s gross income was less than $10,500
  • The child doesn’t file a joint return with a spouse
  • The child didn’t make any estimated tax payments, have federal income tax withheld, or have an overpayment from a prior year applied to the current year

The truly complicated part comes when the child needs funds from the account to pay for college expenses. At this point, they need to sell investments in the account to withdraw funds. That generates capital gains. Parents can’t elect to report capital gains on their own returns, so they typically have to file a separate tax return for the child.

Ownership & Control of the Funds

When it comes to ensuring the child uses the money for educational purposes, 529 plans also have an advantage.

With a 529 plan, the account owner keeps control of the funds no matter the beneficiary’s age. If you save for your child’s education and your child decides not to go to college or doesn’t need all the money, you can switch the account over to another beneficiary or withdraw the money yourself (and pay taxes on the distribution).

With a UGMA or UTMA account, ownership and control over the funds go to the child once they reach the age of majority. At that point, they can spend the money however they’d like. If the child doesn’t need the money to pay for their education, you can’t transfer the account to a different beneficiary.

Contributions & Investment Options

UGMA and UTMA accounts have the advantage when it comes to the flexibility of contributions and investment options. You can fund UGMA and UTMA accounts with cash, investments, real estate, art, patents, royalties, and more. You also have wide latitude when it comes to investing assets in the account.

With a 529 plan, you can only contribute cash, and investment options are limited to those allowed by the particular plan.

You can contribute as much as you want to a 529 plan, but the amount you contribute to the plan each year goes toward your annual gift tax exclusion amount. For 2019, the annual gift tax exclusion amount is $15,000 ($30,000 for a married couple who elect to split their gifts), meaning if you give more than that amount to any one beneficiary’s 529 plan, you must file a gift tax return that year. However, there’s one exception. The IRS allows you to give five years of contributions all at once without paying gift taxes. For 2019, that would be $75,000 for a single person or $150,000 for a married couple.

Impact on Student Aid Eligibility

For financial aid purposes, assets in a UGMA or UTMA account are considered assets of the student. That means they have a significant impact on student aid eligibility calculations — federal financial aid formulas consider 20% of the money in a UGMA or UTMA account as money available to pay for college.

On the other hand, the Free Application for Federal Student Aid (FAFSA) treats funds in a 529 plan as assets of the parent, so it has a lower impact on financial aid eligibility. The FAFSA formula considers a maximum of 5.6% of the money in a 529 plan to be available to pay for college.

If you already have assets in a UGMA or UTMA account and you’re worried about the impact on financial aid awards, you can cash out and reinvest the proceeds into a 529 plan. But before you do, talk to your financial advisor or accountant for help calculating the taxes you’ll pay on any capital gains.

Final Word

If you want to give your child a leg up on saving, which account should you choose? It comes down to your goals. If the primary purpose of your savings is education, a 529 plan offers better tax advantages. If you or your child aren’t sure whether they plan to use the funds for education, buying a home, or any other purpose, you can contribute to a UGMA or UTMA account.

Are you saving for your child’s education? Which type of account are you using?


MintFamily with Beth Kobliner: 3 Ways Your Kids Will Redefine the American Dream

A friend’s 20-something son shocked his parents with his post-graduation plans: He was moving to Southeast Asia to sell selfie sticks.

Millennials in a nutshell, #amiright?

But who can blame them for taking non-traditional paths, given the poor financial hand they’ve been dealt: record levels of college debt, uncertain job prospects, stagnant wages, and more. It’s why one in three Millennials is deeply dissatisfied with their financial situation, according to a much-quoted new study from George Washington University and PwC.

Findings from a recent Harvard survey cut even deeper: half of Millennials say the American Dream is dead. Yep, that cornerstone of post-war America—the house, the car, the upwardly mobile career track—is about as relevant to them as black & white TV. To parents raised on the mythology of the American Dream, that’s grim news.

But the situation may not be as dire as it appears.

As they’ve done with everything from communications to careers, Millennials are redefining what it means to lead a “better life” (something parents see as key to the American Dream, according to a 2015 60 Minutes/Vanity Fair poll). This new paradigm is rooted in the experiences of people who came of age after the financial crisis of 2008, and reflects how they see the world. It offers a flexible lifestyle (one that some might see as transient) and a reworking of the traditional measures of success.

Here are three ways that our kids will make their own American Dream—and thrive.

1.  They’ll rethink what college means—and how to pay for it.

Two-thirds of parents say the American Dream includes sending their kids to college, according to a September poll from the youth media company Fusion. These moms and dads are right to think this, as college grads earn about $1 million more over their lifetimes.

For Millennials, cost and career aspirations are informing this major life decision more than ever (call it pragmatism if you want). Gone are the days of selecting a school based on its bucolic campus or dominant football program. Kids (and parents) want more value—and less debt.

That’s why it’s so critical to start the college cost conversation early—like 9th grade-early. Want an incentive? A start-up called allows high schoolers—as early as freshman year—to earn “micro-scholarships” from over 100 colleges. Got an A in chemistry? Won the lacrosse playoffs? Volunteered at your local animal shelter? Each awesome achievement can earn your kid $500 to over $1,000 from various colleges. Even “mayor” of Millennials Mark Zuckerberg backs it: Facebook is one of’s main supporters.

Best way to avoid the college cost guessing game? Fill out the FAFSA (Free Application for Federal Student Aid)—the key to scholarships, grants, work-study, and low-rate federal loans. The form is notoriously long and complicated, but it’s getting better! Starting this year, you can access the FAFSA on October 1, 2016 (up from January 1, 2017). Why the new, early start? It means you’ll be able to auto-fill the form for the 2017-18 school year using your 2015 tax return data. (More details here.)

Parents of kids who excel in hands-on environments can encourage them to consider the growing trend of apprenticeships (a traditionally European idea that’s catching on here in the U.S.), particularly programs offered in tandem with a community college degree.

2.  They’ll understand that owning your own “home sweet home” is only sweet when you can afford it.

In 1986 (back when I was graduating from college!), 76% of young people saw owning a home as essential to the American Dream. Today that’s down to 59%, according to the Fusion poll.

That means your kid is more likely to bunk with you—or rent—than take on a mortgage she can’t afford (so don’t turn her bedroom into a home office just yet). If she does move in with you, make sure she uses this time as an opportunity to save! (And work out any financial details in advance with this helpful guide from

Renting has traditionally gotten a bad rap, but it lets your kid explore—new towns, new jobs, new people!—without being stuck in one place. Take our selfie-stick seller: his Southeast Asia stint lasted less than a year before he was back in the states and settling into a new city and new gig. Like his fellow Millennials, he’ll probably rent for several years. Buying may not even cross his mind until his early 30s. A Zillow study shows the average first-time homebuyer is now 33, up from 29 in the 1970s. Of course, you’ll want to talk to your kid about the realities of owning a home, including how to sock away a chunk of money for a down payment once she’s ready.

3.  They’ll value happiness and independence over a huge paycheck.

The entrepreneurial goals of Millennials can sometimes seem a little, er, lofty (like the selfie stick plan that didn’t exactly take off), but thankfully, many are starting to pace themselves.

A study from Upwork, a company that helps businesses find freelance workers, showed that 62% (mostly Millennial) freelancers planned to work a full-time job and moonlight on the side for two years before quitting to follow their dreams. Two years may not be a magic number (a specific financial goal would be safer), but at least they’re earning—and learning—prior to taking the leap.

Today’s young people aren’t all work and no play, either. Millennials’ drive for success, salary, and even entrepreneurial goals pales in comparison to their desire to spend time with family and friends, which they rank as “one of the most important things” in their lives, according to the Harvard survey.

The takeaway? We’re raising a generation that demands independence, flexibility, and a true work/life balance. Perhaps that’s the new American Dream.

Sounds like something we can all believe in.

How do you define the American Dream for your kids? Tell me on Twitter using #NewAmericanDream.

© 2016 Beth Kobliner, All Rights Reserved


Beth Kobliner is the author of the New York Times bestseller Get a Financial Life, and is currently writing a new book, Make Your Kid a Money Genius (Even If You’re Not), to be published by Simon & Schuster. Visit her at, follow her on Twitter, and like her on Facebook.

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