Kim Downs-Burns
Associate VP for Student Financial Services, Middlebury College
Can 529 savings impact financial aid?
529 savings could impact financial aid eligibility, but the impact is minimal depending on who owns the 529 account and whether the student is dependent or independent for FAFSA filing purposes.
Impact for dependent students
When parents complete the FAFSA and CSS Profile for a dependent student, 529 accounts (both savings and prepaid tuition) are reported as a parent asset. This is helpful for families because parent assets are treated more favorably in the financial aid eligibility formula, the Student Aid Index (SAI), than student assets. The SAI factors in 20% of student assets. For parents, it can be anywhere from 0 to a max of 5.6%. On the CSS Profile, it’s 25% and 5%, respectively.
For example, if parents have $100,000 in a 529 account for their student, at most, this asset would increase the SAI by $5,640. And they still have $100,000 to help meet college expenses.
The following examples show the difference in SAI for two families. Both have an adjusted gross income (AGI) of $230,000. One family has $0 in assets and the other $100,000.
Be mindful of the form
There are some major changes to how 529 plans are reported on the FAFSA that benefit families. Starting with the 2024/2025 form, parents only report 529 accounts for the beneficiary they are completing the FAFSA for and should not include the value of 529 plans for other children. Also starting with the 2024/2025 FAFSA, accounts owned by someone other than a parent — like a grandparent, aunt, or uncle — are not reported on the FAFSA.
If a college also requires the CSS Profile, that form asks the family to report 529 assets for all children in the household. 529 plans owned by someone other than a parent are reported under a separate question asking about college funding support from relatives other than parents.
Different rules for independent students
For students that are considered independent, reporting rules are a bit different. Independent students do not need to report parent income or asset information on the FAFSA. However, like any other assets in their name, they would need to report the value of any 529 plans in which they (the student) are the owner.
Many families ask if their child could be independent for FAFSA filing purposes, especially if they don’t claim them as a dependent on their taxes. Essentially, a student either needs to be 24, in a graduate school program, a veteran of the armed forces, married, or have dependents of their own to file the FAFSA independently. There are a few other less common scenarios, but how parents file taxes is not a factor.
Always a good idea to apply
If you’re wondering whether you should complete the FAFSA, remember, it’s a good idea to apply for any possible financial assistance, including grants, work-study, and loans. If you plan on borrowing to meet college expenses, the FAFSA is required to access both student and parent federal loans, which typically have favorable rates and repayment terms compared to many private student loan options. In addition to the FAFSA, hundreds of colleges and universities — mostly private — require the CSS Profile to be considered for institutional aid.
*Estimates use CollegeWell’s Student Aid Index (SAI) calculator with the following details. When using the calculator, you will report the market value of a 529 savings plan and the refund value of a prepaid 529 plan.
- Parent federal taxes paid: $30,000
- Student income: $10,000
- Student federal taxes paid: $0
- Student assets: $2,000
- Household members: 4
- Age of older parent: 53
- 1 in college
- Massachusetts resident
Additional source:
https://studentaid.gov/sites/default/files/2024-25-fafsa.pdf
Last updated March 2024
