Does a 529 plan affect financial aid?
A 529 college savings plan can be a powerful tool when saving for future education expenses because investments in the plan can increase tax-free, but many savers don't take full advantage of all the benefits that 529 plans have to offer.
One common deterrent to investing through a 529 plan is the concern that assets in a 529 account will reduce financial aid eligibility. While it's true that 529 assets have an impact on financial aid, the effect is likely smaller than you think.
Do 529 plans affect financial aid?
The short answer is yes. An increase in the means to fund higher education naturally means the beneficiary is eligible for less need-based aid.
However, assets in a 529 plan have a lesser impact on financial aid packages than income does. A student's federal financial aid is based on an estimate of what a family can contribute annually from their income and assets. Income is the largest portion of this measurement of a student's ability to pay for college, which is represented by the Student Aid Index, or SAI, on the Free Application for Federal Student Aid, or FAFSA. The SAI replaced the expected family contribution, which was previously used on the application.
Typically, the SAI calculation expects parents to use 25% to 35% of their adjusted available income to cover college costs, though that number can go as high as 47%. Parental contribution from assets, including 529 account balances, is assessed at a much lower maximum of 5.64%. So, if a family has a 529 account with $10,000, this raises the expected family contribution by at most $564 and reduces the federal aid package by the same amount.
A 529 plan's impact depends on who owns the account
The impact of 529 assets on a beneficiary's financial aid package depends on who owns the account. As outlined above, if the plan is owned by the beneficiary's parent, then 5.64% of the account's value is considered in the SAI, which determines a student's financial aid eligibility on the FAFSA.
On the other hand, if the plan is owned by the student, then up to 20% of the account value may be considered in calculating financial aid eligibility.
With changes to the federal student aid calculation as part of the FAFSA Simplification Act that took effect for the 2024-25 academic year, 529 accounts owned by grandparents or other relatives are not considered student assets and won't impact the beneficiary's financial aid.
Siblings' 529 assets don't count for federal financial aid
After the FAFSA Simplification Act, assets in 529 accounts are counted as parental assets only for the beneficiary of the account. That means, if you have 529 accounts set up for your other children, the assets in those accounts are no longer counted toward the expected family contribution. As mentioned above, accounts owned by grandparents or other relatives will also be excluded from determining federal financial aid eligibility.
Financial aid eligibility differs between FAFSA and CSS profile
There are also schools that use the College Scholarship Service, or CSS, Profile (primarily private schools) to calculate their financial aid packages. The CSS Profile's formula to calculate aid differs from FAFSA's. For instance, the CSS Profile asks for all 529 accounts owned by the beneficiary's parents, whereas the FAFSA only counts 529 accounts for which the student is the beneficiary. Moreover, the CSS Profile is customized by the institution, so each school can have its own formula to calculate its aid packages. While each school that uses CSS Profile information applies its own standards, this calculator estimates what your family might be expected to pay.
___
This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https://www.morningstar.com/personal-finance
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
NBC News
a day ago
- NBC News
Trump aims to slash Pell Grants, which may limit low-income students' college access
For many students and their families, federal student aid is key for college access. And yet, the Trump administration's budget proposal for fiscal year 2026 calls for significant cuts to higher education funding, including reducing the maximum federal Pell Grant award to $5,710 a year from $7,395, as well as scaling back the federal work-study program. The proposed cuts would help pay for the landmark tax and spending bill Republicans in the U.S. Congress hope to enact. Roughly 40% of undergraduate students rely on Pell Grants, a type of federal aid available to low-income families who demonstrate financial need on the Free Application for Federal Student Aid. Work study funds, which are earned through part-time jobs, often help cover additional education expenses. President Donald Trump 's 'skinny' budget request said changes to the Pell Grant program were necessary due to a looming shortfall, but top-ranking Democrats and college advocates say cuts could have been made elsewhere and students will pay the price. 'The money we invest in post-high school education isn't charity — it helps Americans get good jobs, start businesses, and contribute to our economy,' Sen. Elizabeth Warren, D-Mass., told CNBC. 'No kid's education should be defunded to pay for giant tax giveaways for billionaires.' Pell Grants are 'the foundation for financial support' Nearly 75% of all undergraduates receive some type of financial aid, according to the National Center for Education Statistics. 'Historically the Pell Grant was viewed as the foundation for financial support for low-income students,' said Lesley Turner, an associate professor at the University of Chicago Harris School of Public Policy and a research fellow of the National Bureau of Economic Research. 'It's the first dollar, regardless of other types of aid you have access to.' Under Trump's proposal, the maximum Pell Grant for the 2026-2027 academic year would be at its lowest level in more than a decade. 'The Pell reduction would impact the lowest-income families,' said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit. More than 92% of Pell Grant recipients in 2019-2020 came from families with household incomes below $60,000, according to higher education expert Mark Kantrowitz. How Pell Grant cuts could affect college students If the president's cuts were enacted and then persisted for four years, the average student debt at graduation will be about $6,500 higher among those with a bachelor's degree who received Pell Grants, according to Kantrowitz's own calculations. 'If adopted, [the proposed cuts] would require millions of enrolled students to drop out or take on more debt to complete their degrees — likely denying countless prospective low- and moderate-income students the opportunity to go to college altogether,' Sameer Gadkaree, president and CEO of The Institute for College Access & Success, said in a statement. Already, those grants have not kept up with the rising cost of a four-year degree. Tuition and fees plus room and board for a four-year private college averaged $58,600 in the 2024-25 school year, up from $56,390 a year earlier. At four-year, in-state public colleges, the average was $24,920, up from $24,080, according to the College Board. The Pell program functions like other entitlement programs, such as Social Security or Medicare, where every eligible student is entitled to receive a Pell award. However, unlike those other programs, the Pell program does not rely solely on mandatory funding that is set in the federal budget. Rather, it is also dependent on some discretionary funding, which is appropriated by Congress. The Congressional Budget Office projected a shortfall this year in part because more students now qualify for a Pell Grant due to changes to the financial aid application, and, as a result, more students are enrolling in college. Cutting the Pell Grant is 'extreme' Although there have been other times when the Pell program operated with a deficit, slashing the award amount is an 'extreme' measure, according to Kantrowitz. 'Every past shortfall has been followed by Congress providing additional funding,' he said. 'Even the current House budget reconciliation bill proposes additional funding to eliminate the shortfall.' However, the bill also reduces eligibility for the grants by raising the number of credits students need to take per semester to qualify for the aid. There's a concern those more stringent requirements will harm students who need to work while they're in school and those who are parents balancing classes and child care. 'These are students that could use it the most,' said the University of Chicago's Turner. 'Single parents, for example, that have to work to cover the bills won't be able to take on additional credits,' Mayotte said. 'If their Pell is also reduced, they may have to withdraw from school rather than complete their degree,' Mayotte said.
The Independent
22-04-2025
- The Independent
Does a 529 plan affect financial aid?
A 529 college savings plan can be a powerful tool when saving for future education expenses because investments in the plan can increase tax-free, but many savers don't take full advantage of all the benefits that 529 plans have to offer. One common deterrent to investing through a 529 plan is the concern that assets in a 529 account will reduce financial aid eligibility. While it's true that 529 assets have an impact on financial aid, the effect is likely smaller than you think. Do 529 plans affect financial aid? The short answer is yes. An increase in the means to fund higher education naturally means the beneficiary is eligible for less need-based aid. However, assets in a 529 plan have a lesser impact on financial aid packages than income does. A student's federal financial aid is based on an estimate of what a family can contribute annually from their income and assets. Income is the largest portion of this measurement of a student's ability to pay for college, which is represented by the Student Aid Index, or SAI, on the Free Application for Federal Student Aid, or FAFSA. The SAI replaced the expected family contribution, which was previously used on the application. Typically, the SAI calculation expects parents to use 25% to 35% of their adjusted available income to cover college costs, though that number can go as high as 47%. Parental contribution from assets, including 529 account balances, is assessed at a much lower maximum of 5.64%. So, if a family has a 529 account with $10,000, this raises the expected family contribution by at most $564 and reduces the federal aid package by the same amount. A 529 plan's impact depends on who owns the account The impact of 529 assets on a beneficiary's financial aid package depends on who owns the account. As outlined above, if the plan is owned by the beneficiary's parent, then 5.64% of the account's value is considered in the SAI, which determines a student's financial aid eligibility on the FAFSA. On the other hand, if the plan is owned by the student, then up to 20% of the account value may be considered in calculating financial aid eligibility. With changes to the federal student aid calculation as part of the FAFSA Simplification Act that took effect for the 2024-25 academic year, 529 accounts owned by grandparents or other relatives are not considered student assets and won't impact the beneficiary's financial aid. Siblings' 529 assets don't count for federal financial aid After the FAFSA Simplification Act, assets in 529 accounts are counted as parental assets only for the beneficiary of the account. That means, if you have 529 accounts set up for your other children, the assets in those accounts are no longer counted toward the expected family contribution. As mentioned above, accounts owned by grandparents or other relatives will also be excluded from determining federal financial aid eligibility. Financial aid eligibility differs between FAFSA and CSS profile There are also schools that use the College Scholarship Service, or CSS, Profile (primarily private schools) to calculate their financial aid packages. The CSS Profile's formula to calculate aid differs from FAFSA's. For instance, the CSS Profile asks for all 529 accounts owned by the beneficiary's parents, whereas the FAFSA only counts 529 accounts for which the student is the beneficiary. Moreover, the CSS Profile is customized by the institution, so each school can have its own formula to calculate its aid packages. While each school that uses CSS Profile information applies its own standards, this calculator estimates what your family might be expected to pay. ___ This article was provided to The Associated Press by Morningstar. For more personal finance content, go to
The Guardian
28-03-2025
- The Guardian
Student loan startup founder found guilty of defrauding JPMorgan Chase of $175m
Charlie Javice, the charismatic founder of a startup company that claimed to be revolutionizing the way college students apply for financial aid, was convicted on Friday of defrauding one of the largest US banks, JPMorgan Chase, out of $175m by exaggerating her customer base by 10 times. A jury in New York City returned its verdict after a five-week trial. Javice, 32, faces the possibility of a lengthy prison term. Javice was in her mid-20s when she founded Frank, a company with software that promised to simplify the process of filling out the Free Application for Federal Student Aid, a complex government form used by students to apply for aid for college or graduate school. The company promoted itself as a way for financially needy students to obtain more aid faster, in return for a few hundred dollars in fees. Javice appeared regularly on cable news programs to boost Frank's profile, once appearing on Forbes' '30 Under 30' list before JPMorgan bought the startup in 2021. JPMorgan executives testified that she told them she had over four million clients and would have about 10 million by year's end, but it turned out there were only about 300,000 customers. Javice's lawyer, Jose Baez, told the jury that JPMorgan knew what it was getting in the deal and made up the fraud allegations due to buyer's remorse after government regulatory changes made the data it received in the deal useless to its hopes of gaining new young customers. Javice is among a number of young tech executives who vaulted to fame and media accolades with supposedly disruptive or transformative companies, only to see their businesses collapse amid questions about whether they had engaged in puffery and fraud while dealing with investors. She founded the company not long after graduating from the University of Pennsylvania's business school, telling interviewers she was motivated to dive into helping college students connect with financial resources because of her own frustrations navigating the process of getting financial aid. Frank's financial backers included venture capitalist Michael Eisenberg. The company offered a product similar to online tax preparation software that it said could help students maximize their financial aid while making the application process much less painful. JPMorgan was interested in acquiring Frank partly because of the potential it saw in the startup's supposedly huge list of satisfied customers. The bank believed those young, future college graduates could potentially be sold on the idea of a lifelong partnership with the financial institution. After buying the company, JPMorgan said it found evidence Javice had lied about her number of customers. Frank's chief of engineering, Patrick Vovor, testified at the trial that Javice had asked him to generate synthetic data to support her claim that the company had over 4 million users. At the time, JPMorgan was insisting on verification of the customers. Vovor said he refused her request. Sign up to TechScape A weekly dive in to how technology is shaping our lives after newsletter promotion 'I told them I would not do anything illegal,' Vovor testified. Defense lawyers attacked Vovor's credibility during the trial, suggesting he had a crush on Javice and was resentful that he had been rejected, a claim he denied. Prosecutors said Javice then paid a college friend $18,000 to use a computer program to create millions of fake names with pedigree information. The results were sent to a third-party data provider that JPMorgan hired to verify the number of customers, but the data provider never checked to ensure the people were real, testimony showed. Baez said the bank knew what it was getting and the number of customers was in the hundreds of thousands rather than millions. 'JPMorgan is not telling the truth,' he said. 'They knew the numbers.' Javice, who lived in Miami Beach, Florida, has been free on $2m bail since her arrest in 2023.
