Supporting non-US student's education in the USA

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Topic Author
hameshatumkochaha
Posts: 187
Joined: Tue Feb 22, 2011 6:33 pm

Supporting non-US student's education in the USA

Post by hameshatumkochaha »

Hi,
My first cousin's son (from India) is bright and is coming to the USA like I did 20+ years ago for his master's program (he is 18+). While he is trying to get an education loan in India (8+% interest), we are exploring if using my CCs in the USA will result in easier life for all. Personally, I have a family member in ICU and using CC this time will reduce health risks on my cousin's family as they won't be running around banks... He will be in a University on the east coast and won't be living with me. I understand that there are risks involved etc in loaning the money by giving my CC to him but based on the historic past of the people involved and the cultural and family/relationship backgrounds, I don't anticipate the risk to be high. I intend to not charge interest etc. While I intend to support, I don't intend to fully "sponsor" his education. Secondly, I don't need the money in India Rupee ever nor do I need the money in USD for a few years. In other words, consider it an interest free USD currency loan for a few years to be repaid in the USA.
Questions:
1. What is the best way to do this?
2. I doubt I can, but can I claim him as a dependent or use the education based expenses support to reduce my taxes while filing my US taxes IF I am "sponsoring" his education?
3. I am almost sure that I cannot, but wondering if I can claim him as a dependent or reduce my taxes if I am simply giving him interest free loan for a few years?
Thanks
TedSwippet
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Location: UK

Re: Supporting non-US student's education in the USA

Post by TedSwippet »

hameshatumkochaha wrote: Wed Jul 14, 2021 10:57 pm 3. I am almost sure that I cannot, but wondering if I can claim him as a dependent or reduce my taxes if I am simply giving him interest free loan for a few years?
Far from lowering your taxes, providing an interest free loan may well increase them:

The Tax Landmines Of Lending To Family Members
In a family loan, when there is no interest rate or a rate below the IRS-determined minimum rate, the interest that isn’t charged is assumed to be income to the parent from the child. In other words, there is imputed interest income or phantom income. The parent is to report interest income at the IRS-determined minimum rate as gross income, though no cash is received.
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celia
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Re: Supporting non-US student's education in the USA

Post by celia »

Are you asking if you should use your credit card to pay for your cousin’s education and living expenses? If so, will you be able to pay it all off every month? (Note that college fees are usually due in one lump sum at the beginning of each semester.).

A. If you can afford to pay the monthly fees, use checks instead because the credit card will cost the college, restaurants, and stores about 3% more and pass that cost onto you.

B. If you can’t pay this off every month, using credit cards is a horrible way to pay since the unpaid balance will probably cost you an extra 18% and give you a bad credit history. Don’t do that.

C. If your plan is something else, please explain it again. I don’t understand how you make a “loan” out of this.

Other info that would be helpful:
* Do you live and work in the US?
* Are you subject to the same income taxes that US citizens living in the US pay?
* Can you afford to pay this student’s entire college expenses and living expenses while s/he is in the US?
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: Supporting non-US student's education in the USA

Post by KlangFool »

OP,

There are a lot of missing information here.

A) In order for a person to get a Visa to study in the USA, the person has to have the financial resource to support the person in the USA.

B) Why would someone from India come to the USA for a master degree without a full scholarship? Almost no one pays for STEM master degree. The university will provide scholarship and a TA position for the student.

C) Why a 8% loan in India is a bad thing? It is not. If this person is capable, the person can pay it off with his US salary easily.

D) If you have to use the CC and/or need the money back, you cannot afford it.

E) Don't loan money to family. Give whatever amount of you can afford and the person can reduce the amount of the education loan.

F) The student can open a checking account and you can deposit/give the money into the account. No CC is needed.

G) You can even pay the tuition directly.

KlangFool
Last edited by KlangFool on Thu Jul 15, 2021 2:03 pm, edited 1 time in total.
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theRoCK
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Re: Supporting non-US student's education in the USA

Post by theRoCK »

I believe the answer to questions 2 and 3 are no. Since he/she will not be a US resident (F1 visas are non-resident alien status), I think that automatically precludes them. Also, if they get a TA/RA once here or take up a part time job, that would also preclude them from being claimed as your dependent as their income from that would likely be greater than $4300 for the year.

Regarding your question about giving them your CC, I agree with a lot of what Klang said. Sending money to a checking account rather than credit card is a better way to do it, since college tuition is likely not payable with a credit card, at least without hefty fees, anyway. If you plan to pay it off monthly, why not send them the money directly?! (Unless the idea is to also track what they are spending the money on :twisted: !!). If you dont pay it off monthly, then the impact on your credit score and the interest charged is going to be a lot higher than the student loan rates.
Topic Author
hameshatumkochaha
Posts: 187
Joined: Tue Feb 22, 2011 6:33 pm

Re: Supporting non-US student's education in the USA

Post by hameshatumkochaha »

THANKS for sharing this link! THANKS!
TedSwippet wrote: Thu Jul 15, 2021 3:06 am
hameshatumkochaha wrote: Wed Jul 14, 2021 10:57 pm 3. I am almost sure that I cannot, but wondering if I can claim him as a dependent or reduce my taxes if I am simply giving him interest free loan for a few years?
Far from lowering your taxes, providing an interest free loan may well increase them:

The Tax Landmines Of Lending To Family Members
In a family loan, when there is no interest rate or a rate below the IRS-determined minimum rate, the interest that isn’t charged is assumed to be income to the parent from the child. In other words, there is imputed interest income or phantom income. The parent is to report interest income at the IRS-determined minimum rate as gross income, though no cash is received.
Topic Author
hameshatumkochaha
Posts: 187
Joined: Tue Feb 22, 2011 6:33 pm

Re: Supporting non-US student's education in the USA

Post by hameshatumkochaha »

A. Yes I can afford to pay the monthly fees. CC allows me interest free loan for a month. I pay off 100% each month. Might get me some ~2.5% cash back.
B. I never put anything on CC that I did not pay that month. This is great input for those who don't. Appreciated!
C. No major plan to do anything else. Just want to do it right and want to keep it simple.
Yes.
Yes
Not exactly, but mostly yes.
Thanks!

celia wrote: Thu Jul 15, 2021 3:57 am Are you asking if you should use your credit card to pay for your cousin’s education and living expenses? If so, will you be able to pay it all off every month? (Note that college fees are usually due in one lump sum at the beginning of each semester.).

A. If you can afford to pay the monthly fees, use checks instead because the credit card will cost the college, restaurants, and stores about 3% more and pass that cost onto you.

B. If you can’t pay this off every month, using credit cards is a horrible way to pay since the unpaid balance will probably cost you an extra 18% and give you a bad credit history. Don’t do that.

C. If your plan is something else, please explain it again. I don’t understand how you make a “loan” out of this.

Other info that would be helpful:
* Do you live and work in the US?
* Are you subject to the same income taxes that US citizens living in the US pay?
* Can you afford to pay this student’s entire college expenses and living expenses while s/he is in the US?
Topic Author
hameshatumkochaha
Posts: 187
Joined: Tue Feb 22, 2011 6:33 pm

Re: Supporting non-US student's education in the USA

Post by hameshatumkochaha »

A. He has the financial resource. It is corona etc that we are trying to avoid the risk to his family. India is suffering. I am trying to avoid them running around to banks during the corona.
B. Many students come without funding.
C. Yes, it is not a bad thing.
D. I can afford a good portion of his expense to reduce the corona running around risk for the coming months. Got many cards. Good point though.
E. Good point. My father used to say, when money and relationship come together, the relationship almost always suffers.
F. CC is more for convenience. I use CC as 1 month late checking account since I always pay in full each month.
G. That's what I am thinking about doing. Just pay the fees to Univ using a CC.
THANKS!

KlangFool wrote: Thu Jul 15, 2021 6:09 am OP,

There are a lot of missing information here.

A) In order for a person to get a Visa to study in the USA, the person has to have the financial resource to support the person in the USA.

B) Why would someone from India come to the USA for a master degree without a full scholarship? Almost no one pays for STEM master degree. The university will provide scholarship and a TA position for the student.

C) Why a 8% loan in India is a bad thing? It is not. If this person is capable, the person can pay it off with his US salary easily.

D) If you have to use the CC and/or need the money back, you cannot afford it.

E) Don't loan money to family. Give whatever amount of you can afford and the person can reduce the amount of the education loan.

F) The student can open a checking account and you can deposit/give the money into the account. No CC is needed.

G) You can even pay the tuition directly.

KlangFool
Topic Author
hameshatumkochaha
Posts: 187
Joined: Tue Feb 22, 2011 6:33 pm

Re: Supporting non-US student's education in the USA

Post by hameshatumkochaha »

After talking with the cousin and her family in India, we decided to use my funds as a backup. The reason for decision was more their status progress of loan in India than anything else.
As a thought exercise, I was wondering, what if someone were to gift say $15k a year to the cousin's son and after 3 years, he gives $15k back as a gift. While this is not the right way to do it, if IRS catches, it could be a problem, it might be something one could get by. There might be other people doing this same thing to simply achieve the interest free loan that the Forbes good article discusses at great length.
Anyway, this thought exercise won't apply to us as the loan in India got approved in the last 2 days without much running around by the cousin's family. :)
Thanks all for your inputs so far!
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: Supporting non-US student's education in the USA

Post by KlangFool »

hameshatumkochaha wrote: Fri Jul 16, 2021 12:52 am A. He has the financial resource. It is corona etc that we are trying to avoid the risk to his family. India is suffering. I am trying to avoid them running around to banks during the corona.
B. Many students come without funding.
C. Yes, it is not a bad thing.
D. I can afford a good portion of his expense to reduce the corona running around risk for the coming months. Got many cards. Good point though.
E. Good point. My father used to say, when money and relationship come together, the relationship almost always suffers.
F. CC is more for convenience. I use CC as 1 month late checking account since I always pay in full each month.
G. That's what I am thinking about doing. Just pay the fees to Univ using a CC.
THANKS!

KlangFool wrote: Thu Jul 15, 2021 6:09 am OP,

There are a lot of missing information here.

A) In order for a person to get a Visa to study in the USA, the person has to have the financial resource to support the person in the USA.

B) Why would someone from India come to the USA for a master degree without a full scholarship? Almost no one pays for STEM master degree. The university will provide scholarship and a TA position for the student.

C) Why a 8% loan in India is a bad thing? It is not. If this person is capable, the person can pay it off with his US salary easily.

D) If you have to use the CC and/or need the money back, you cannot afford it.

E) Don't loan money to family. Give whatever amount of you can afford and the person can reduce the amount of the education loan.

F) The student can open a checking account and you can deposit/give the money into the account. No CC is needed.

G) You can even pay the tuition directly.

KlangFool
hameshatumkochaha,

<<B. Many students come without funding. >>

If they are not good enough to get a scholarship, what makes you think that it is a good investment? If the family can afford the luxury, then, it is not a problem.

Please note that we, uncles and aunties, had sponsored many of our nephews and nieces (not our own kids) to come to the USA for college education. 50% of them dropped out and never finished the college. But, in this case, we can afford it.

<<F. CC is more for convenience. I use CC as 1 month late checking account since I always pay in full each month.
G. That's what I am thinking about doing. Just pay the fees to Univ using a CC. >>

This does not work. The university charge 3% or more for the processing fee if you use the CC.

KlangFool
Last edited by KlangFool on Fri Jul 16, 2021 7:37 am, edited 1 time in total.
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KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Supporting non-US student's education in the USA

Post by KlangFool »

hameshatumkochaha wrote: Fri Jul 16, 2021 2:19 am After talking with the cousin and her family in India, we decided to use my funds as a backup. The reason for decision was more their status progress of loan in India than anything else.
As a thought exercise, I was wondering, what if someone were to gift say $15k a year to the cousin's son and after 3 years, he gives $15k back as a gift. While this is not the right way to do it, if IRS catches, it could be a problem, it might be something one could get by. There might be other people doing this same thing to simply achieve the interest free loan that the Forbes good article discusses at great length.
Anyway, this thought exercise won't apply to us as the loan in India got approved in the last 2 days without much running around by the cousin's family. :)
Thanks all for your inputs so far!
hameshatumkochaha,

It is very simple.

If you need the money back, you cannot afford to loan/give the money.

KlangFool
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Topic Author
hameshatumkochaha
Posts: 187
Joined: Tue Feb 22, 2011 6:33 pm

Re: Supporting non-US student's education in the USA

Post by hameshatumkochaha »

Thanks for the inputs.
And yes, since I never paid a univ with a CC before, so when I checked last night, Univs indeed charge ~3% fee. Huh. :(
Anyway, like I said, the cousin's family decided to use me as their backup plan. All is well.
Thanks again all!

KlangFool wrote: Fri Jul 16, 2021 7:31 am
hameshatumkochaha wrote: Fri Jul 16, 2021 12:52 am A. He has the financial resource. It is corona etc that we are trying to avoid the risk to his family. India is suffering. I am trying to avoid them running around to banks during the corona.
B. Many students come without funding.
C. Yes, it is not a bad thing.
D. I can afford a good portion of his expense to reduce the corona running around risk for the coming months. Got many cards. Good point though.
E. Good point. My father used to say, when money and relationship come together, the relationship almost always suffers.
F. CC is more for convenience. I use CC as 1 month late checking account since I always pay in full each month.
G. That's what I am thinking about doing. Just pay the fees to Univ using a CC.
THANKS!

KlangFool wrote: Thu Jul 15, 2021 6:09 am OP,

There are a lot of missing information here.

A) In order for a person to get a Visa to study in the USA, the person has to have the financial resource to support the person in the USA.

B) Why would someone from India come to the USA for a master degree without a full scholarship? Almost no one pays for STEM master degree. The university will provide scholarship and a TA position for the student.

C) Why a 8% loan in India is a bad thing? It is not. If this person is capable, the person can pay it off with his US salary easily.

D) If you have to use the CC and/or need the money back, you cannot afford it.

E) Don't loan money to family. Give whatever amount of you can afford and the person can reduce the amount of the education loan.

F) The student can open a checking account and you can deposit/give the money into the account. No CC is needed.

G) You can even pay the tuition directly.

KlangFool
hameshatumkochaha,

<<B. Many students come without funding. >>

If they are not good enough to get a scholarship, what makes you think that it is a good investment? If the family can afford the luxury, then, it is not a problem.

Please note that we, uncles and aunties, had sponsored many of our nephews and nieces (not our own kids) to come to the USA for college education. 50% of them dropped out and never finished the college. But, in this case, we can afford it.

<<F. CC is more for convenience. I use CC as 1 month late checking account since I always pay in full each month.
G. That's what I am thinking about doing. Just pay the fees to Univ using a CC. >>

This does not work. The university charge 3% or more for the processing fee if you use the CC.

KlangFool
User avatar
celia
Posts: 16774
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Location: SoCal

Re: Supporting non-US student's education in the USA

Post by celia »

hameshatumkochaha wrote: Sat Jul 17, 2021 1:15 am Thanks for the inputs.
And yes, since I never paid a univ with a CC before, so when I checked last night, Univs indeed charge ~3% fee. Huh. :(
Anyway, like I said, the cousin's family decided to use me as their backup plan. All is well.
Thanks again all!
Two other things that I don’t think were mentioned yet:

You should keep your own credit card and ask the credit card company to make your cousin an authorized user of a different card linked to yours. (That way their name will match their ID if they should be questioned.) Ask if the authorized user will get a different card number. If so, it will be easy to keep her expenses separate. If not, stop using your card and get a new one for yourself and just store your current card away. You will be the only person who will be legally responsible for charges made by the authorized user.

Secondly, compare the credit limit on the card you were planning on sharing with the semester tuition that would be due. You may not be able to cover the huge tuition on a credit card. I also would not want someone walking around with “my” credit card having such a high limit, not even my own kids, whom I had as authorized users on my credit card.
ecocredit
Posts: 31
Joined: Wed Jul 02, 2014 11:25 pm

Re: Supporting non-US student's education in the USA

Post by ecocredit »

This is a great thread. Had a lot of interesting information. I do feel compelled to comment on a few things.

1. I think most folks here are not aware of the cultural context especially the Indian context. The Indian society is not as individualistic as American. Lending / Borrowing money among family members is a pretty common practice. The society is less reliant on financial institutions for financing and more on family to help each other out. Even when family lends money there is interest paid in some situations. For instance, a rich uncle/aunt may finance their niece / nephews education and may be paid back over time. Banks tend to make very expensive loans while micro financing from family members is a lot cheaper. This isn't exactly OP's situation.

2. The specific situation OP was referring (running around to banks during COVID-19 crisis) is a common scenario due two factors. Many banks are ill equipped to handle financial transactions over the internet and people actually prefer to go to banks to deposit / withdraw money or perform other transactions. CCs are not that common and payments may not be accepted via CCs due to high transaction fees. Therefore, OP was trying to avoid the hassle for their family.

3. In today's world getting a TA/RA for a Master's program is harder than ever. Research funding is primarily given to PhD students. After the 2008 recession, funding to universities dried up quite a bit resulting in budget cuts. This meant universities had to cut funding to Masters programs. As a result a lot of student do not find funding not because they're not deserving but because the funds do not exist. An additional issue is that foreign students on visas may not typically get funding as these are great profit centers for Universities. The tuition is typically 2-3x out of state tuition for International students so universities are not too keen to subsidize them.
Topic Author
hameshatumkochaha
Posts: 187
Joined: Tue Feb 22, 2011 6:33 pm

Re: Supporting non-US student's education in the USA

Post by hameshatumkochaha »

Thanks! EcoCredit certainly has a good background of Indian culture.
Thanks all for the comments! They were all helpful! Much appreciated!
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