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529 student loans

Can a 529 Be Used to Pay Student Loans?

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With one in five Americans carrying student debt, more people than ever are looking for creative solutions to pay off their higher education loans. But thanks to a new change to a familiar college savings plan, families might not have to look further than their 529 savings account.

In December 2019, the Setting Every Community Up for Retirement (SECURE) Act was signed into law, which opened 529 savings plan approved withdrawals to include both principal and interest payments towards student loans.

What is a 529 Plan?

Before diving into what this change means for graduates, let’s get our terms in order. A 529 plan is a tax-advantaged savings plan where families can build funds for qualified higher education expenses. Before December 2019 these expenses could include tuition, housing, textbooks, and more for K-12 and college expenses. This is compared to the money you put into a traditional savings account, which you have to pay income tax and more on before using for education expenses.

In addition to federal tax-free growth and tax-free withdrawals for qualified expenses, many states will also offer residents a full or partial tax credit or deduction for contributions to their state’s plan, or any plan. The state tax benefits are dependent on where you reside and have a 529 plan set up.

The first $20,000 of parental assets in a 529 savings plan also fall under the asset protection allowance and won’t be counted in the Expected Family Contribution calculation on the FAFSA when applying for financial aid.

Want to learn more about 529 Plans? Read: The Best Gift for Your Child’s Future? A College Savings Plan


So what changed and has opened up 529 spending to include student loan repayment? The SECURE Act was passed 417 to 3 in the House of Representatives and signed into law by President Trump in December 2019 as a part of an appropriations act and tax measure.

The SECURE Act does include a lifetime limit of $10,000 in qualified student loan repayments per beneficiary, and $10,000 per each of the beneficiary’s siblings.

The act packaged a number of provisions outside of 529 plan changes aimed to make it easier for Americans to put aside money for retirement savings, including new small business tax incentives to set up automatic enrollment in retirement plans for workers.

This isn’t the first change to how 529 plans can be used in recent years. In 2017 the Tax Cuts and Jobs Act expanded the allowable uses of accounts to include up to $10,000 in annual private K-12 tuition expenses.

Are There Any Restrictions to Using a 529 for Student Loan Debt?

The new act allows families to save after-federal tax dollars for educational costs, but some states have more limited allowable uses for 529 plans. Many states are still deciding how to interpret the SECURE Act and deciding if they will include state deductions on student loan payments from 529 plans.

Before using your 529 to make payments toward your student loans, it is important to review your own plan and see if your state has any restrictions.

Conquer your student debt. Refinance now.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.