How 529 accounts affect financial aid
More than half of students pay for college with the help of financial aid — a combination of merit and needs-based aid including grants and scholarships, work study and loans. 529 accounts are a huge help for families looking to minimize student loan debt while covering as much of the college price tag as possible as the cost of higher education continues to rise.
While a 529 account may affect a financial aid package, the impact is usually minimal, but can vary based on who owns the account.
Parent of dependent student
If a 529 account is owned by a dependent student or a dependent student’s custodial parent, it is reported as a parent asset on the Free Application for Federal Student Aid (FAFSA).
Independent student
If a 529 account is owned by an independent student, it is reported as a student asset on the FAFSA.
Grandparents or anyone else
Beginning with the 2024-2025 FAFSA, withdrawals made by grandparents or others will no longer be treated as income on the student’s tax return or be considered untaxed student income.
The FAFSA and 529 accounts: A closer look
You’ve worked hard and saved $30,000 in a 529 account for your 18 year old child. Here’s how those funds could affect their federal financial aid over the next 2 years.1
Year 1
Your child’s eligibility for federal financial aid this year will decrease by about 6.0% of the account value, or $1,800 ($30,000 x 6.00%). Assume there is no further appreciation in the account and you withdraw $10,000 to pay for tuition and other qualified expenses.
Year 2
You have $20,000 left in the account when your child applies for financial aid for sophomore year, and it will again be assessed up to 6.0% of the account value, decreasing your federal financial aid that year by $1,200 ($20,000 x 6.00%).
