In addition to what dcandmc has stated, there are also a lot of other factors to consider. If you had gifted the money to your granddaughter:
- You may inadvertently subject her to the dreaded Kiddie Tax. Basically, if the child's interest, dividends, and other unearned income total more than $2,100 (in 2016), part of that income may be subject to tax at the parent's tax rate instead of the child's tax rate.
She will not qualify for as much financial aid (assets and income of the student outside dedicated college savings vehicles like 529s and Coverdells are assessed at a higher rate in the financial aid formula)
You lose control of the assets, meaning your granddaughter - who I'm sure is awesome! - could theoretically use the money for anything. Within a 529 account you control the investments and distributions.
- The gift may have been subject to the gift tax.
It sounds like you made some great financial decisions. Be proud that even if she has to borrow, she'll be borrowing less because you helped save.
VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.