What is a 529 Savings plan?
A 529 savings plan is a savings account created specifically to save money to pay for higher education.
Can a 529 savings plan impact your financial aid?
Yes, a 529 savings plan can impact your financial aid! But, don’t worry, there’s a way around it – it all depends on ownership. If a parent or student owns the account, then it could affect financial aid.
However, if a grandparent owns the account, there should be no effect on financial aid awards.
Let’s break it down
What happens if the student or a parent owns the 529 Savings Plan?
529 plans owned by a student or parent do not get counted against you or affect your Expected Family Contributions (EFC) as long as the amount in the account is under $20,000. If the amount of money in the account exceeds $20,000, then a maximum of 5.64% of parental assets get counted vs. other assets, which are counted at a 20% rating.
While the lower percentage is good because it reduces the amount of your EFC, if your EFC reaches too high of a threshold, it can mean less financial aid awarded to the student.
What happens if a grandparent owns the 529 Savings Plan?
When a grandparent owns a 529 plan, there is no impact on the student’s financial aid and the asset doesn’t need to be listed on the Free Application for Federal Student Aid (FAFSA®).
What does get factored in are the withdrawals to pay for college. These amounts are considered student income and receive a 50% assessment rating. That means if your grandparents take out $12,000 to help cover school costs, $6,000 of that contribution will get factored into the student’s EFC and can reduce eligibility for financial aid.