Editor’s note: This is the first article in a six-part series focused on paying for education using smart financial and estate planning. Other articles focus on 529 plans, Coverdell Education Savings Accounts, Uniform Transfer to Minor Accounts (UTMAs), education trusts and family loans. See below for links to the other articles.

It’s never too early to start thinking about how to pay for the education of your child, grandchild or someone else you want to support. The cost of schooling continues to increase in the United States, and not just in higher education. Even independent day and boarding schools are raising tuition at higher rates to retain teachers and keep pace with inflation. The good news is that paying for education can be done through smart financial and estate planning.

As an outsourced chief investment officer firm, Hirtle Callaghan is often asked by families how to weigh the various options for paying for education. This series will examine different possibilities in depth, from direct payments, to government-sponsored plans and other estate planning techniques.

Efficient tuition funding: Direct payments explained

For estate planning purposes, it may be most efficient and effective to pay directly for someone else’s tuition. Unlike other options we will explore, paying tuition on behalf of another individual does not require years of advance planning. Yet, it can have an immediate tax benefit because the tuition payment does not count toward your annual gift tax exclusion or your lifetime exemption amount. For example, you can make a direct payment of $40,000 to a school to cover the cost of a grandchild’s tuition and then make a gift of $18,000 (in 2024) to the same grandchild in the same year free from gift taxes.

As noted above, it is critical that the tuition must be paid directly to the educational institution. If a grandparent were to give their son or daughter money to pay the tuition (and not do it directly), then the transfer would count as a gift under federal tax law. This option is not only available for college or graduate school but is also available for preschool, private grade school and private high school tuition. It is worth noting the direct payments apply only to tuition, not the cost of books, supplies or room and board. Those other expenses would count as gifts under federal gift tax law.

How this could affect financial aid

A direct contribution can negatively impact financial aid eligibility because it is treated as untaxed income on the Free Application for Federal Student Aid (FAFSA), which reduces eligibility by 50% of the amount paid. So, a tuition payment of $10,000 may reduce eligibility by $5,000. However, if financial aid is not a consideration, paying tuition directly may be the easiest and most tax-efficient way to fund a child, grandchild or loved one’s education.

Benefits:

• Tuition payments are removed from the grantor’s estate, which leaves fewer assets in the grantor's estate that could later be subject to estate tax.
• Direct tuition payments to an institution do not count toward the lifetime or annual gift tax exclusion
• Direct payments can be used for preschool, private grade school, private high school, college and graduate school

Considerations:

• Financial aid may be reduced
• The costs of books, supplies or room and board are not covered

Opting to pay tuition directly to an educational institution can be a savvy move for those looking to support someone’s education without coming up against gift tax limitations. However, it’s essential to consider the potential impact on financial aid eligibility and remember that this method covers only tuition, not ancillary expenses like books and room and board.

Also, paying directly for someone else’s education requires being willing and able to part with disposable income.

Each family's situation is unique, so it’s crucial to weigh this option against other strategies, such as government-sponsored plans or educational trusts, to find the best fit for your financial and estate planning goals. By carefully evaluating your choices, you can effectively support education while optimizing tax benefits and aligning with your broader financial planning strategy.

The next article in this series will be about unlocking the power of 529 plans.

Other Articles in This Series

• Part two: 529 Plans: A Powerful Way to Tackle Rising Education Costs
• Part three: Coverdell Education Savings Accounts: A Deep Dive
• Part four: UTMA: A Flexible Alternative for Education Expenses and More
• Part five: How an Irrevocable Trust Could Pay for Education
• Part six: How Intrafamily Loans Can Bridge the Education Funding Gap

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

To help you understand what is going on in the jobs and education sectors, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we publish many (but not all) of our forecasts a few days afterward online. Here’s the latest...

With the job market starting to cool off internships will play an even bigger role for college students in finding a job, and for employers that are trying to hire well-qualified candidates. Here are some tips for both hiring managers and job seekers navigating the tricky labor market. 

Things are getting tough for new graduates. Job offers are drying up. The jobless rate among recent grads is at the highest level since 2016 — with the exception of the pandemic summer of 2020. Unemployed workers in general are finding it harder to land a new job. The number of job listings is back to its pre-pandemic normal and the amount of time spent by applicants on finding a new job is creeping up. 

Internships are increasingly key to an offer. Many employers treat them as auditions, in which they get an extended look at a possible hire without a major commitment. In a crowded market, demonstrated, relevant experience via an internship often counts for a lot more than an applicant’s GPA. Firms in finance, consulting and tech in particular are likely to hire from among their prior interns. Even if a graduate doesn’t land a full-time job where they previously interned, a good track record as an intern doing related work can lead to an offer elsewhere. In one survey, 80% of employers cited internship programs as their top recruiting tool. 

A sign of how key internships are: 60% of graduating seniors have done one. At the most selective colleges, the figure is more like 90%. A major benefit those schools offer is their deep networks of contacts at leading firms, and the ability to place students with them. The ability to open those doors is a valuable component of the overall experience of attending an Ivy League or other top-echelon university. 

Also, note that the nature of internships is evolving. Short-term programs are gaining in popularity. They let students get their feet wet and make an impression on prospective employers, who can cycle through a lot of potential future hires with minimal commitment. Parker Dewey was founded to arrange “micro-internships,” which total less than 40 hours and pay participants $20 to $25 per hour. Another site, virtualinternships.com, sets up online gigs for students looking to work at foreign firms. 

For employers considering hiring interns, whether to pay is a major decision. Unpaid programs are OK but should meet certain criteria to not run afoul of labor laws. For starters, there must be a clear benefit to the intern, in the form of gaining skills and experience (and often, academic credit from their university), and it should be clear up front that the work is unpaid. Still, paid internship programs will naturally draw more and better applicants, likely leading to better performance while the program lasts, and a bigger pool of qualified applicants for full-time jobs.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

It's a tale as old as time: If you want to make a lot of money, the best college major for a lucrative career is to study engineering and avoid the arts, right? 

Well, what if you studied engineering and art? A working paper from the National Bureau of Economic research suggests the best option is an and, not an or when it come to college majors. 

"Graduates with double majors seem to experience much more protection from market shocks," including mass layoffs, disruptive technology and labor demand shifts, co-author Drew Hanks told the Wall Street Journal about the results of the study. 

Like an investor with a diversified portfolio, college grads with double majors tended to have fewer fluctuations in earnings than those with single majors, the paper found. That impact was most pronounced, the paper says, in grads whose majors were more differentiated (think: engineering and art, not chemical engineering and mechanical engineering). 

The researchers believe there is good reasoning for this effect.

"First, the broader range of skills possessed by double majors may position them for different jobs that are more protected from labor market fluctuations," the paper reads. "Second, double majors may generate an option value. For instance, if one major experiences a negative shock in labor demand while the other remains unaffected, a double major can pursue a job related to the unaffected major, thereby mitigating the impact of the adverse shock to their other major on their earnings."

Personally, I'm a big advocate for double majors — and this paper is vindicating my 19-year-old self's foresight. Brag incoming: I majored in both economics and creative writing as an undergraduate, and I've found both to be helpful in my career, both for what I learned and for the credentials they've provided. 

Studying economics helped me to see the world in a different way and think analytically, while studying creative writing helped me to be able to communicate and organize those thoughts. They informed each other in ways I couldn't have predicted and, wouldn't you know it, here I am using both in my role at Kiplinger. 

Beyond earning potential, pursuing a double major made my college life more fun. Instead of having to pick one lane and funnel myself into one definition, I played with different areas of study that I enjoyed. 

My other double major classmates also kept things interesting. For instance, I'll never forget when one of my classmates, who double majored in creative writing and mathematics, turned in an essay for a writing class peppered with equations that he made poetic.

After all, your college studies are about learning and exploring, not about earning potential... right? 

But if the undergrad in your life is focused on earning potential, you can always send them the latest information on the highest paying college majors — you just might want to suggest they pair it with one of the lowest paying ones for stability. 

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The use of artificial intelligence (AI) is becoming more common across industries. From Chat GPT to improved automation, employers and employees are learning how to work with the new technology. To help you understand what is going on and what we expect to happen in the future, our highly-experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest...

Demand is surging for educational courses related to artificial intelligence. Global online learning platform edX, founded in 2012 by Harvard University and the Massachusetts Institute of Technology, recently launched a 10-week boot camp starting in July, offered by 12 universities related to cutting-edge AI topics and skills. edX has five new courses on ChatGPT that focus on how to improve text prompts. Meanwhile, Coursera, another popular education platform, has dozens of AI courses. 

Look for online courses to be popular with businesses, who want managers and employees to quickly bone up on new AI tech. While ChatGPT and other tools don’t require any technical know-how, it takes some skill to produce useful results. Generative AI lets users enter text to generate useful, humanlike written responses.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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Buttressing your resume with a new skill is one of the best ways to make a modest financial investment pay big returns. One study found that, depending on the skill and the worker’s previous education and job, some holders of short-term (typically defined as taking 6-18 months) credentials earned 65% more than otherwise equivalent colleagues.

If you just need to learn a new skill, there are plenty of free options, including online classes available through your public library or on platforms such as Coursera, edX, FutureLearn, LinkedIn and Udemy. And many colleges offer free auditing opportunities to groups such as veterans or those over age 60.

But if you want to prove to employers that you’ve really mastered a new skill, you’ll need a certificate or credential program that requires you to pass proctored tests. Almost all of those come with a cost.

And just like any other investment, these are no slam-dunk. One recent study found that about half of the short-term credential programs accredited to award federal financial aid failed to increase earnings enough for students to recoup their costs within five years. And Credential Engine, a nonprofit that is monitoring the field, says that there are now more than 967,000 different credential programs – a number that can overwhelm prospective students.

The experts suggest winnowing by these three factors:

Field: A recent analysis of thousands of job postings by labor market analytics firm Lightcast found growing demand for data visualization, social media marketing and data analysis skills, even for jobs that didn’t have such technology requirements as recently as 2016, such as in human relations or marketing.

Provider: Because the whole point is to impress employers, you’ll want a program with a good reputation in the field you’re targeting. That varies by industry, so it pays to get guidance from managers in your company or at your dream employer. Look beyond name colleges. Lightcast has found that employers also value certifications from trade associations such as the Computing Technology Industry Association (CompTIA) and companies such as Amazon.

Mode: The biggest waste of money is to invest in a program you don’t finish. So you have to be realistic about time demands and the boredom factor. Online self-paced classes offer the most convenience and are typically lower cost. But Dhawal Shah, CEO of Class Central, a search engine for online courses, who has taken other shorter online courses, ended up dropping out of a long, tough statistics course offered by edX. “Six months is a long time to do something hard on your own,” he explains.

For the disciplined, the University of Washington offers an Essentials of Cybersecurity certificate through edX at a cost of $716.40. Alternatively, Coursera offers a specialization certificate in data visualization from the University of California, Davis. Coursera, which charges as little as $49 a month, says the program should take about six months, bringing the cost to under $300.

Getting human support doesn’t have to break the bank. Coastal Carolina Community College offers a blended online and in-person program to help you prepare for an entry level CompTIA techie test, known as A+. The tuition and books expense for locals is just $306, though you’ll also have to budget for transportation. The test runs another $246, still bringing your total cost to well below $1,000.

In the latest Kiplinger's Personal Finance Magazine, our editors offer advice on how to spend, save and invest $1,000. Get other smart tips:

• Add small-caps to your porfolio
• Use fractional shares to buy small amounts of pricey stocks
• Open an account with a low-cost roboadviser
• Lend money to a good cause