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Impact on Financial Aid

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.

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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%).

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Impact on financial aid FAQs

: Beginning in 2024-2025, 529 accounts will only be counted as a parental asset if the account is designated for the student. Previously, if a parent had education savings accounts for their other children, the value of those was also required to be counted.
: Student Aid Index (SAI) will replace Expected Family Contribution (EFC) for 2024-25. It is an important factor in the needs-analysis calculation on the Free Application for Federal Student Aid (FAFSA), the form used by colleges, states, and other scholarship providers to determine financial aid packages.
: Some schools require additional information to determine financial aid awards. Inclusion of accounts owned by someone other than the student or custodial parent depend on the school’s requirements. The best resource for detailed financial aid information is your school’s financial aid office or a college access or financial aid advisor in your area. For more information about federal student aid, visit studentaid.gov.
: Like any non-retirement investment or savings, 529 accounts may affect eligibility for need-based financial aid – however, the impact is minimal. For accounts owned by parents and dependent students, the Free Application for Federal Student Aid (FAFSA) assesses 529 assets at about 5.64 percent of the value when calculating the Student Aid Index (SAI) for financial aid eligibility. Accounts owned by other parties will impact eligibility differently. For more information, consult studentaid.gov or an educational financial aid advisor.
: Typically, having a 529 account doesn’t impact merit-based financial aid, like academic or athletic scholarships, and may be used to pay for qualified expenses not covered by a scholarship or retained for future years, for either undergraduate or graduate school.
: If your student gets a scholarship, you have options. You can use the money in the 529 account to pay for qualified expenses not covered by a scholarship or retain the funds for future years. Some plans allow you to request a scholarship refund or transfer the account to another student.
: Like any non-retirement investment or savings, 529 accounts may affect eligibility for need-based financial aid – however, the impact is minimal. For accounts owned by parents and dependent students, the Free Application for Federal Student Aid (FAFSA) assesses 529 assets at about 5.64 percent of the value when calculating the Student Aid Index (SAI) for financial aid eligibility. Accounts owned by other parties will impact eligibility differently. For more information, consult studentaid.gov or an educational financial aid advisor.

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¹This information and examples are being provided for general informational purposes only, Invest529 does not give legal, tax or investment advice. Please consult a legal, tax or investment professional if you have questions about your student’s financial aid package or the FAFSA.