If you’re planning to shoulder all or some of the cost of your child’s college education, you’re giving your child a wonderful gift. And that’s just how the Internal Revenue Service (IRS) sees it — as a gift. Depending on the amount you offer and whether you give it directly to your child or to the school, you could get hit with an additional expense, known as the gift tax.
Whenever you give someone money as a gift, you automatically become subject to the gift tax. Whether you actually need to pay that tax, however, will depend on the size of the gift, who is receiving it, and what it was used for. Here are some things to keep in mind if you want to give your child money for college but avoid paying any additional taxes.
Table of Contents
Key Points
• Giving property or money to someone without getting something of equal value in return is classified by the IRS as a gift, which may be subject to the gift tax.
• The IRS considers paying for your child’s college tuition a gift, which may incur a gift tax depending on the amount and method of payment.
• A 529 plan allows parents to contribute up to the annual limit of gift tax exclusions per child, offering a tax-advantaged way to save for college.
• Tuition payments made directly to an educational institution are exempt from the gift tax, regardless of the amount.
• Other ways to help pay for college include assisting with completing the Free Application for Federal Student Aid (FAFSA®), exploring Parent PLUS Loans, and considering private student loans if additional funding is needed.
What Is the Gift Tax?
According to the IRS, the gift tax is “a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift.”
That’s a lot of words to essentially mean that if you give someone a gift of property, including money, without getting something of equal value in return, it may be considered a gift. And if you’re gifting, it might be subject to the gift tax. In general, the gifter is responsible for paying the gift tax costs.
Before you start worrying if you’ll have to pay a gift tax on the $100 bill you slipped into your niece’s graduation card, it’s important to know that the gift tax generally only affects large gifts.
This is because there’s an annual exclusion for the gift tax, which means that gifts up to a certain amount aren’t subject to it. For 2026, the federal annual gift tax exclusion is $19,000 per person, and if you and your spouse both gift money, the annual exclusion is $38,000.
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Gifting Your Money Directly to Your Children
Children aren’t treated differently when it comes to the gift tax, which means that whether you’re gifting your neighbor money for being really great all those years or transferring $20K to your child’s bank account to help them pay for college, the gifts are treated in the same way by the tax code.
This means that a gift you make to your child for the purpose of paying tuition or covering educational expenses may be subject to the gift tax if the gift exceeds $19,000 in 2026 (if you’re single) or $38,000 (if you’re married and making a joint gift).
With the average cost of attendance at a private university now averaging $58,628 per academic year, it’s conceivable that you would end up giving your child a cash gift that exceeds the annual gift tax exemption.
One way around this is to gradually put money aside every year in a 529 account. Gifters can contribute up to $19,000 in 2026 to a 529 account per person per year, with no risk of getting hit with a gift tax. That means a married couple could gift up to $38,000 per account per year in 2026 without paying a gift tax.
Recommended: Paying for College: A Parent’s Guide
Paying College Expenses Directly
In addition to the annual exclusion limit, the IRS waives the gift tax on gifts used to pay tuition expenses. There’s no limit on how much you can pay, but the caveat is that you have to give the money directly to your student’s school. Otherwise, any amount over the annual exclusion limit will be subject to the gift tax.
This means that, in some cases, it may save you some cash to pay the school directly rather than first giving the money to your child and having them use it for tuition. It’s important to consider all your options, as gifted tuition payments may impact the student’s need-based aid.
Other Ways to Pay for College
If you don’t have enough savings or would rather not deplete your savings to pay for your child’s tuition and expenses, here are some other ways to help your child cover the cost of college.
Help Your Student Complete the FAFSA
Submitting the FAFSA is a critical step when it comes to getting federal student aid. While the FAFSA is the student’s responsibility, when a student is considered a dependent for FAFSA purposes, parents play a large role in the application process. As a result, you, as a parent, can help make the process faster and easier.
The FAFSA is a gateway to several forms of financial aid, including grants, scholarships, work-study, and federal student loans, so it’s worth filling out even if you don’t think you’ll qualify for aid. Many colleges also use the FAFSA when awarding institutional (merit-based) aid, and some states use the form for certain state-based aid.
Take Out a Parent Loan
If your student has a gap in funding after tapping financial aid, including federal student loans, you might next look into parent student loans. You have two options: federal Parent PLUS Loans and private student loans. The best one for your situation generally depends on your credit history.
Here’s what to consider when looking at Parent PLUS Loans vs. private student loans.
Parent PLUS Loans
With Parent PLUS Loans, you can borrow up to the cost of the child’s attendance each year, minus any financial assistance that has been awarded, with no other limit on the amount borrowed. This is true regardless of the parents’ income. However, starting July 30, 2026, parents will only be able to borrow up to $20K per year or $65K total per student.
For Parent PLUS Loans first disbursed on or after July 1, 2025, and before July 1, 2026, the interest rate is 8.94%, which is higher than the rate for the previous 2023-2024 and 2024-2025 periods. There’s also a loan fee of 4.228%. As federal loans, however, Parent PLUS loans have access to multiple government-sponsored repayment plans and forgiveness programs.
Parent PLUS loans aren’t subsidized, so interest begins to accrue on the outstanding loan balance as soon as funds are disbursed and continues to accrue even if you choose to defer making payments on the loan until after your child graduates from college.
Recommended: What Percentage of Parents Pay for College?
Private Student Loan for Parents
If you have good or excellent credit, you may be able to qualify for a private student loan for parents that has a lower interest rate than a Parent PLUS Loan. Depending on your credit, you could potentially see a difference of 2% or more. Over the course of a 10-year repayment period, that lower interest rate can add up to significant savings. Keep in mind, though, that private loans don’t offer the same protections and benefits that automatically come with federal education loans.
If you’re considering private student loans, be sure to check your rates with multiple lenders to find the right loan for you. You can typically browse rates without any impact on your credit score — prequalification typically involves a soft credit check.
đź’ˇ Quick Tip: Need a private student loan to cover your school bills? Because approval for a private student loan is based on creditworthiness, a cosigner may help a student get loan approval and a lower rate.
The Takeaway
Giving money to your child for their college education is considered a taxable gift in the eyes of the IRS. However, parents can give up to $19,000 in cash to a child individually and $38,000 jointly in 2026 without getting hit with a gift tax. Parents can also pay for tuition directly to the college to avoid getting hit with a gift tax.
You can reduce how much you’ll need to chip in for your child’s college expenses by helping them fill out the FAFSA. This will give them access to scholarships, grants, work-study, and federal student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
Is paying for my child’s college tuition considered a gift?
Paying for your child’s college tuition isn’t considered a taxable gift by the Internal Revenue Service as long as the payments are made directly to an accredited college or university. If you prefer to give money directly to your child, you can give them up to $19,000 a year as an individual in 2026 without being subject to the gift tax.
What is the best way to give my grandchild money for college?
Grandparents can open a section 529 plan naming their grandchild as the beneficiary, or they can contribute to an existing account. Using a 529 plan can help set aside funds while avoiding the gift tax, so long as individual contributions don’t exceed the exclusion limit. Withdrawals can be used to pay for college expenses.
Do parents get a tax break for paying college tuition?
There are two tax credits parents can apply for — the American Opportunity Tax Credit or the Lifetime Learning Credit. You can only claim one credit per student per year.
Is there a maximum amount that can be contributed to my child’s college tuition?
Ultimately, it’s your choice how much you contribute, but there are some thresholds to keep in mind. For example, under federal regulations, a qualified tuition plan, also known as a section 529 plan, contributions cannot exceed the amount necessary to provide for the qualified education expenses of the beneficiary. But if your contributions in 2026 total more than $19,000, you’ll be subject to gift tax. If you pay an institution directly, you won’t have to pay gift tax, no matter how much you contribute.
About the author
Julia Califano
Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.
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