How a 529 Plan Affects your FAFSA

Calculating the amount of financial aid to award a student can be tricky. Many elements are connected and affect each other. One such example is 529 savings plans and the FAFSA. Your 529 plan affects your FAFSA and how much aid you can receive. Here’s a rundown of those details.

A father and daughter reviewing how 529 plan affects the FAFSA

What is a 529 Plan?

A 529 plan “is a tax-advantaged savings plan designed to encourage saving for future education costs.” They’re also known as “qualified tuition plans” and are sponsored by the state or agencies and institutions within the state. The type of 529, prepaid tuition plans, and education savings plans, available depends on the state. You can even opt for 529 plans out of your state – some offer better options and lower fees.

A prepaid tuition plan is a 529 plan that allows the account holder to have units or credits at colleges and universities that are participating. These credits can cover fees and tuition at the participating schools, but not room and board or primary school tuition. Almost all of these are sponsored by state governments and are not guaranteed by the federal government.

Education savings plans are an investment account that can be opened by an individual for a beneficiary that covers everything from tuition to room and board. They can cover up to $10,000 per year and can be used at almost every college and university, including some outside the United States.

How Does it Affect your FAFSA?

Not every 529 plan’s assets necessarily will affect your FAFSA. How it works depends on who owns the plan.

For 529 Plans Owned by the Student or Parent

Assets in the 529 plan owned by students or parents will be counted on the FAFSA. However, they count as parental assets. The first $10,000 of parent assets aren’t counted towards the Expected Family Contribution (or EFC). The higher the EFC, the less financial aid. The distributions will receive favorable treatment however on the FAFSA.

For 529 Plans Owned by Other Relatives or Other People

However, if the 529 plan is owned by another relative – a grandparent, an aunt or uncle, or someone else – it won’t count as student or parental assets on the FAFSA. However, when the money is taken out in order to cover college expenses and given to the student, it will count as student income. Student income is only assessed at 50%, so for $8,000 withdrawn, only $4,000 will be counted as income. There are ways around this though, especially if you withdraw the money later in the student’s education rather than earlier.

How a 529 Plan Affects your FAFSA

When it comes to a 529 plan, you need to think about how it will affect your FAFSA. Who the plan holder is will have a major impact on how it works and how distribution is counted. It’s also essential to review your options state to state and make the best decision for your education and finances.

 

Lender Rates (APR) Eligibility
Sallie Mae logo.
1.13% to 11.23%1 Variable
3.50% to 12.60%1 Fixed
Undergraduate and Graduate
VISIT SALLIE MAE
Credibe company logo.
1.04% to 13.19% Variable
3.00% to 14.14% Fixed
Undergraduate and Graduate
VISIT CREDIBLE
Lendkey company logo.
1.49% to 7.64% Variable >800 FICO
3.99% to 7.64% Fixed
Undergraduate and Graduate
VISIT LENDKEY
Ascent company logo.
1.82% to 11.32% Variable
3.27% to 12.46% Fixed
Undergraduate and Graduate
VISIT ASCENT
College Ave company logo.
0.99% to 11.98% Variable
2.99% to 12.99% Fixed
Undergraduate and Graduate
VISIT COLLEGE AVE
3.47% to 6.11% Variable
4.60% to 7.40% Fixed
Undergraduate and Graduate
VISIT ISL
Earnest company logo.
1.04% to 11.44% Variable
3.34% to 12.78% Fixed
Undergraduate and Graduate
VISIT EARNEST
1.20% to 11.59% Variable
3.31% to 11.99% Fixed
Undergraduate and Graduate
VISIT ELFi
1Variable interest rates start from 4.12% APR to 10.98% APR. We also offer fixed interest rates from 5.74% APR to 11.85% APR. Click here for important information. Terms, conditions, and limitations apply.
College Raptor is not a loan lender and does not assume responsibility for suggesting a loan to a user who may not be eligible for it. Rates, terms, conditions, eligibility, approval, and other considerations are the decisions of the lenders and may vary depending on which lender or marketplace the user selects. We urge users to carefully consider and review all loan options and terms before committing to taking out a loan.

Leave a reply

Your email address will not be published. Required fields are marked *