Q: Will a 529 plan affect my student’s ability to get financial aid?

A:  That depends on who is the owner of the 529 account.  The income and assets of the family are used to determine the Expected Family Contribution (EFC) when applying for financial aid. Twenty percent of assets in the student’s name (e.g., custodial accounts) are counted toward the EFC, only 5.6% of assets owned by the parent (e.g., 529 plan) are counted. Zero percent of any assets owned by a grandparent is considered in the EFC toward financial aid. Therefore, there can be an advantage in terms of qualifying for student loans by having a grandparent as the owner of your student’s 529 plan. However, distributions from a grandparent owned 529 plan will significantly reduce financial aid qualification.  Read about all the details and potential workarounds HERE.

Keep in mind that most need-based financial aid is simply a student loan. So, money saved for college through 529 plans will reduce the amount of debt your student eventually needs to pay back.