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Does a 529 affect financial aid?

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Many families say paying for college is among their most important financial goals. One popular tool to help cover that expense is a 529 education savings plan.

But does a 529 affect financial aid? It can—though its impact may be less dramatic than you think. Some people worry that having money in a 529 reduces the amount of aid a school offers. That's by no means a sure thing. And there may be steps you can take to minimize reductions to your award. Usually, the benefits of a 529 outweigh any negative effects.

A note on changes starting with 2024-25 financial aid applications: The Free Application for Federal Student Aid (FAFSA) is going through some significant changes that are designed to simplify the application process. Although new applications are usually available in October, the FAFSA for the 2024-25 school year may not be available until December 2023. The information below reflects changes that will be in effect when the new FAFSA becomes available.

What's a 529 education savings plan?

529 plans are designed to help students and families save and pay for education expenses. Some are prepaid tuition plans that let you lock in current prices for future studies at a particular school or university system. But the more popular options—called 529 education savings plans—allow you to invest after-tax contributions, accumulate tax-deferred earnings and take tax-free distributions to pay for education-related expenses. Depending on where you live, the plan also may qualify for state income tax deductions and tax credits.

Every 529 plan has a designated beneficiary—the student whose education it will support—and an account owner, which could be the student, a parent, a grandparent, a family friend or someone else. A 529's impact on financial aid eligibility may depend, in part, on who owns the account.

How do colleges calculate financial aid?

There are different types of financial aid:

  • Merit-based. Awards may be issued for accomplishments in academics, athletics and other areas. Usually, 529s don't affect how much merit-based aid you receive.
  • Need-based. Aid amounts depend on how much money a student and family can contribute to education costs. Having a 529 plan may influence how much need-based aid you receive.

To qualify for federal need-based financial aid at any college or university, you must fill out the FAFSA. Colleges use it to calculate how much they expect you can pay toward education expenses. Formerly known as the expected family contribution (EFC), that amount is now called the student aid index (SAI).

Your SAI determines how much need-based aid a school offers. The higher your SAI, the less aid you receive. You must submit a new FAFSA for each year you wish to receive need-based financial aid.

How does a 529 affect the FAFSA?

To determine your SAI, the FAFSA asks about income and assets. So, a 529 plan might be a factor when you fill out the form. Sometimes, a 529's impact on your SAI depends on who owns the plan.

A parent of a student, or student claimed as a dependent owns the 529 plan

  • Plan funds count as a parent asset.
  • Up to 5.64% counts toward SAI. For example, if you have $10,000 in a 529, it could add $564 to your SAI (thereby reducing your aid package by that amount). Note: The tax breaks a 529 plan provides may well exceed that amount.
  • Exception: If a parent's annual income is less than $50,000 (and a few other conditions are met), the FAFSA doesn't consider parent assets in the SAI calculation.

An independent student (not claimed as a dependent) owns the 529 plan

  • Plan funds count as as student asset.
  • Up to 20% counts toward SAI.
  • Exception: If the student has children or other dependents (other than a spouse), then up to 3.29% of the 529's value counts toward SAI.

A grandparent, relative or someone else owns the 529 plan

  • Does not count as an asset (0% counts towards SAI.)
  • 529 plans owned by people other than the student or their parents aren't reported as assets on the FAFSA. So they're not considered in SAI calculations.

What lessens a 529's impact on financial aid?

As noted earlier, account ownership affects how the FAFSA treats a 529. If an independent student owns a plan, the resulting aid award will be smaller than if the same plan is owned by a parent or dependent student. If the same plan is owned by a grandparent, it will not impact SAI at all, so the aid award will be larger than if the plan is owned by a student or parent.

What other strategies can help cover college costs?

Education tax credits

You may be able to take an American Opportunity Tax Credit for up to $4,000 in education expenses per year (depending on your income and other factors). Just remember: Those expenses can't include 529 contributions or any payments made with 529 funds.


Students should apply for scholarships to pursue merit-based financial aid. The FAFSA doesn't count these awards as assets or income, so they have no bearing on how much need-based aid the student receives.


If you plan to use student loans as part of a college financing strategy, compare options from different lenders. Often, federal loans offer lower rates and more flexible payback terms than loans from private institutions.

How can families learn more?

Funding a college education calls for advance planning and a certain level of commitment. Saving with a 529 plan has proven valuable for many students and their families. And don't forget: If you open a 529 for someone who doesn't end up needing it, you can use the money in other ways.

To learn more about how to open a 529 and maximize its value, talk with a Thrivent financial advisor.