How 529 college savings plans impact need-based financial aid eligibility

What happens when you apply for need-based financial aid?

When your child approaches college age, they will need to complete a Free Application for Federal Student Aid, or “FAFSA,” form in order to be eligible for federal financial aid.

On this form, you are generally required to include parents’ and student’s assets and income.

A federal formula then determines a family’s Expected Financial Contribution (EFC), which is the basis for determining need based financial aid.

What impact do 529 savings have on need-based financial aid?

If you are the account holder and your child is the beneficiary of the 529 account and a dependent student, the money you have saved is typically considered a parental asset, not a student asset.

In that case, the family can expect the student’s need-based aid package to be reduced by up to 5.64% of the asset’s value. If the asset is considered a student’s asset, a family can expect the student’s need-based aid package to be reduced by up to 20%.

This means that if parents have saved $5,000 for college, the aid amount your student may be eligible for would be reduced by $280. Certain exclusions may also apply that could impact this amount. For more information visit

Since the majority of federal financial aid is offered in the form of loans, college savings could help to reduce reliance on student loans.

You or your Beneficiary should check the following to determine the impact of an investment in a 529 plan on need-based financial aid programs:

applicable laws or regulations;

with the financial aid office of an Eligible Educational Institution; and/or

with your tax professional.

Saving vs. Borrowing could cut college costs in half.

There are many ways that a family can pay for the cost of college. But some of those options can be more costly than others. Two of the ways that a family could choose to pay is by either saving in a 529 plan or borrowing with loans. The example below illustrates how one family could choose to pay for $25,000 in college costs.



A family choosing to invest about $86 per month for 15 years in a 529 plan would have made a total out-of-pocket investment of about $15,500.

With potential earnings, this could amount to $25,000 to use toward college expenses. A hypothetical 6% annual return is assumed.



A family choosing to borrow might pay about $265 per month over 10 years for a total out-of-pocket cost of nearly $31,800 for $25,000 in loans.

This assumes a 4.99% interest rate on subsidized Federal direct undergraduate loans, which do not accrue interest during college.

financial aid infographic

By saving early, you could pay $16,300 less out-of-pocket

This chart is for illustrative purposes only and does not project or predict the return of any specific investment option. Returns in a college savings plan will vary and may be higher or lower than in this example. Making automatic monthly contributions does not assure a profit or protect against loss in a declining market. This example does not consider any investment or loan origination fees. Amounts are rounded. The loan interest rate is based on a Federal direct undergraduate loan disbursed in July 2022. Other loan arrangements could have different rates or terms.

Additional Resources

Explore the websites below for additional information about Financial Aid.