Gifting College to Your Grandchild

Back in the late 1960s, when many of today's grandparents were heading off to college, tuition was measured in the hundreds of dollars. A semester at the University of Iowa cost in-state students $185 in 1968. That same year, Harvard students were shocked by a 20% hike in tuition...to $2,400 a year.

This year, the all-in cost of the U of I for an Iowa resident, including tuition, room and board, and books, is almost $23,000 a year; at Harvard, it's about $70,000. No wonder more and more grandparents are stepping forward--enthusiastically, reluctantly or somewhere in between--to help pay their grandkids' college bills.

When Steve Kerr, a retired law enforcement officer in Temple, Texas, thinks of his three-year-old grandson Kieran's future, he says he hopes the apple of his eye will go to college and study whatever inspires him, without having to take on crushing student loans.

So Kerr, 63, and his wife, Diane, are establishing a 529 college-savings plan for Kieran. Money they contribute to the account will grow tax-free over the years and can be withdrawn tax-free to pay Kieran's college bills. Kerr is studying and comparing the costs of various state plans. He's also weighing whether to manage the investments within the plan by himself or to hire an investment adviser.

The Kerrs plan to contribute what they can