How does it work?529 plans typically have less of an impact on federal financial aid than some other college savings methods, like the custodial UGMA/UTMA accounts.
FAFSA and the EFC
FAFSA (The Free Application for Federal Student Aid) is used to apply for most federal student financial aid. In addition, a number of states and schools use FAFSA information for their own financial aid processes. The Expected Family Contribution (EFC) is a popular financial aid formula for determining a family's financial need and federal financial aid eligibility. Reducing your EFC typically increases your financial aid eligibility. In the EFC, some assets count more than others:
- A student's assets (such as an UGMA/UTMA account) count for the largest percentage: about 20% of the EFC calculation.
- A parent's assets count for less than 6%.
Since a 529 plan account is generally considered to be a parent's asset if the beneficiary is a dependent student, it has less of an impact than other savings methods that are in the child's name.1
Impact on merit-based financial aid
Participation in a 529 plan generally does not limit a student's ability to receive merit-based financial aid - including academic or athletic scholarships. Since the methods used by individual schools can differ, you should always consult the school itself or a financial aid advisor.
Note
The effect of being an account owner or beneficiary of a 529 plan account varies from institution to institution. Accordingly, no generalizations can be made about the effect of being the account owner or beneficiary of a 529 plan account on the student's eligibility for financial aid, or the amount of aid the student may qualify for, from such sources.
The federal and non-federal financial aid programs' treatment of assets in a 529 plan are subject to change at any time. You should therefore check and periodically monitor the applicable laws, other official guidance, and particular program and institutional rules and requirements, to determine the impact of 529 plan assets on eligibility under particular financial aid programs.
1 You should consult a qualified tax or financial aid advisor for information specific to your circumstances.
