529 Plans & Financial Aid: Understanding the Impact

There are many ways that a 529 college savings plan can affect financial aid. As a parent, you should be aware of this before you open a 529 college savings plan for your child. The same holds true if you are a student who is thinking about this type of savings for the future. Above all else, remember that every educational institution treats 529 college savings plan assets differently. Generally speaking, investing in a 529 college savings plan will reduce the amount of need-based money offered to the student.

Impact on Financial Aid

All money that is held in a 529 college savings plan will be taken into consideration when reviewing the free application for federal student aid (FAFSA). This money is treated as a parental asset, and will greatly affect the expected family contribution (EFC). In most cases, a 529 college savings plan is held by a parent. The money in the account is reported as an asset, and is assessed at a maximum rate of 5.64 percent. This income is used to adjust the expected family contribution.