Can a tuition loan defer payments until after graduation?

Yes. A common structure is interest-only or no payments for the duration of school plus 6 months grace, then amortizing payments over 5 to 10 years. Interest still accrues during deferment in most cases (unsubsidized model), or the lender absorbs interest during deferment (subsidized model).

Is paying tuition directly different from a tuition loan?

Yes, and it matters for taxes. Payments made directly to the school for tuition are exempt from gift tax (no annual exclusion limit, no Form 709). The same money given to the student to pay tuition is a gift. A loan is a loan in either case, but the safest no-gift, no-tax move is to pay the school directly.

What rate do I have to charge a child on a tuition or wedding loan?

For loans over $10,000, charge at least the applicable AFR (short-, mid-, or long-term depending on the term of the loan). Below $10,000 the de minimis rule exempts you. Any rate from AFR up to your state's usury cap is allowed.

Can I forgive part of the loan as a graduation reward?

Yes. Forgiveness is treated as a gift in the year forgiven. Use the annual exclusion ($19,000 per donor per recipient in 2026) to forgive in tranches across multiple years tax-free. Document each forgiveness in a written letter.

Should the wedding loan involve the spouse?

Often yes. If the loan is for a wedding, the spouse benefits from it. A note signed by both spouses doubles your annual exclusion for forgiveness ($38,000 per donor couple per year if both lender-spouses give to both borrower-spouses) and gives you a second source of repayment if the marriage struggles.

Promissory Note for a Tuition or Wedding Loan

Two common big-ticket family loans, two slightly different structures. Tuition loans usually defer payments until after graduation. Wedding loans usually start payments right away. Both benefit from a simple promissory note that says what was lent, what is owed, and what the family will do if life takes a turn.

Why bother documenting it

Three reasons families regret skipping the paperwork:

The IRS treats undocumented intra-family loans as gifts, costing the lender lifetime exemption
If the lending parent dies, the executor cannot collect from siblings without proof of debt
If the borrower divorces, the spouse can argue it was a gift to the marital estate, costing the parents half

A signed note solves all three. It costs $7.99 and an hour to draft.

Tuition loan: standard structure

The most common terms:

Principal: total of expected loan amount, often disbursed in semester tranches
Interest: at AFR (long-term if maturity is over 9 years)
Payment schedule: deferred during school + 6 months grace, then amortizing over 5 to 10 years
Interest accrual during deferment: usually yes (unsubsidized), sometimes paid by lender (subsidized)
Maturity: 10 years from first payment
Prepayment without penalty
Acceleration on default

Pay the school directly when possible

Federal gift tax has a special rule: payments made directly to a qualifying educational institution for tuition are not gifts at all. No annual exclusion limit. No Form 709. Room, board, and books do not qualify; tuition does.

If the parent\'s real intent is to gift the money but they want it to stay tax-clean, paying tuition directly is the cleanest path. A promissory note with deferred forgiveness is plan B if the parent wants the option of being paid back.

Wedding loan: standard structure

Different shape because the proceeds are spent immediately and there is no graduation date:

Principal: full amount of the loan
Interest: at AFR for the term (usually mid-term, 3 to 9 years)
Payment schedule: monthly amortizing starting 30 to 90 days after the wedding
Maturity: 5 to 10 years
Both spouses sign as co-borrowers (joint and several liability)
Prepayment without penalty

The forgiveness strategy for both

Many parents intend to forgive part or all of the loan over time. The structure that minimizes tax:

Lend the full amount with a real note at AFR
Each year, forgive an amount equal to the annual gift exclusion ($19,000 per donor per recipient in 2026)
For a married couple lending to a married couple, four exclusions apply: $19k x 4 = $76,000 per year tax-free
Document each forgiveness in a written letter signed by the lender

This converts what would be one large taxable gift into a series of smaller annual exclusions. Over 5 years a married couple can forgive up to $380,000 to a married child without filing a single Form 709.

Imputed interest during deferment

For tuition loans with deferred payments, interest still accrues even if it is not paid. The lender owes income tax on accrued interest as if it were received in cash. To avoid surprises:

Lender reports accrued interest each year on Schedule B
Borrower keeps a payment ledger showing interest accruing
When deferment ends and payments begin, principal and accrued interest are blended into the new amortization schedule

Co-signers, parents, and grandparents

Common variations:

Grandparent funds, parent co-signs: grandparent is the lender, parent guarantees the note. Grandparent can use generation-skipping transfer tax exemption for forgiveness over time.
Parents jointly fund: the note names both parents as lenders. Each can use their own annual exclusion when forgiving.
One parent funds, both forgive: for forgiveness, both parents can join in the gift if they elect "gift splitting" on Form 709.

Default scenarios and what to do

Borrower drops out of school: immediately switch the deferred period to a payment schedule, or add an amendment extending deferment for a stated reason
Borrower hits financial hardship: forbearance amendment with missed payments added to the end of the term
Marriage ends before wedding loan is paid: joint-and-several liability lets you collect from either ex-spouse, but practical reality usually means renegotiating with the spouse who keeps the loan
Borrower stops responding: send a written demand letter, then accelerate, then sue within the statute of limitations

Generate an Installment Note - $7.99 Or an Unsecured Note - $7.99