529 plans could be used for student loans in new tax legislation

Grandparents saving for their grandchildren’s education could especially benefit, Kantrowitz said.

Currently, a parent’s 529 plan has a minimal impact on their child’s financial aid eligibility, whereas grandparents’ accounts can have a serious one. To workaround that drawback, grandparents could now wait to use their 529 plans until their grandchildren are out of school and in debt. (More than 70 percent of graduates carry student loans.)

Still, the policy’s benefits will be inconsequential, said Steven Bloom, director of government relations for the American Council on Education.

Most people deplete their 529 plans by the time their child is finished with college and so there would be no money left over for them to cover their student debt anyway, Bloom said.

And, he added, “If you’re wealthy enough to have a lot in your 529, you’re probably not going to have student loans.”

There are ways that tax policy can provide relief to the millions of Americans with student debt, he said, such as adding incentives for employers to help their workers with their loans. However, this proposal, “makes it looks like you’re trying to solve a problem,” he said, “when you’re not really solving it.”

Fewer than 1 in 5 children under the age of 18 have a 529 plan, according to SavingforCollege.com. Half of those who do make more than $150,000.

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