Effective since July 1, 2009, a 529 account is now regarded as an asset of the student if the student is an independent student and an asset of the parent if the student is a dependent student under the federal financial aid rules.  

An independent student generally includes an individual who:

·      is age 24 by December 31 of the award year,

·      is an orphan, in foster care or a ward of the court (other rules may apply),

·      is an emancipated minor,

·      is a war veteran,

·      is a graduate or professional student,

·      is married,

·      has legal dependents other than a spouse,

·      is homeless (other rules may apply), or

·      has special and unusual circumstances which can be documented to his or her financial aid administrator.

Prior to July 2009, a 529 plan was considered a resource of the student if a pre-paid tuition plan and an asset of the student if a savings plan.  While an asset is considered in the EFC formula, a resource directly impacts eligibility dollar for dollar.    

Why is this important?  As an independent student, only the student’s (and spouse if married) income and assets are considered when determining need-based financial aid eligibility.   The parent’s financial information is not required when calculating the student’s Expected Family Contribution (EFC).

The formula counts the following financial resources as being available to pay college expenses:

o  20% of a student’s assets (money, investments, business interests, and real estate)

o  50% of a student’s income (after certain allowances)

o  2.6%- 5.6% of a parent’s assets (money, investments, certain business interests, and real estate, based on a sliding income scale and after certain allowances)

o  22%-47% of a parent’s income (based on a sliding income scale and after certain allowances)

Then need-based eligibility is determined as follows:

COST OF ATTENDANCE (COA)

-          EXPECTED FAMILY CONTRIBUTION (EFC)

=     FINANCIAL NEED

-          RESOURCES OF THE STUDENT

=     ADJUSTED FINANCIAL NEED

One can readily see that treatment as a parental asset is much more favorable (2.6% to 5.6%) as compared to a student asset assessed at 20%.  However, if the owner of the 529 plan is neither the parent nor the student, the savings account is not included in the calculation.  Anyone can contribute to a 529 College Savings Plan on behalf of the student and the owner need not be the parents.    

Consideration should be given to the ownership of such accounts in regards to their impact on the student’s ability to receive need-based financial aid.   Doing an estimated EFC calculation will help determine this as you compare the results to the cost of the colleges and university the student is considering applying to.