Can you use 529 plan funds to pay student loans? Heres what to know
Big changes to how the federal government finances higher education were introduced in 2025, and many potential and former students may be wondering if they can still use funds from a 529 account to pay down student loans.The short answer is yes. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 expanded the definition of qualified higher education expenses to include the repayment of up to $10,000 in student loans.This allows 529 plan beneficiaries to take tax-free distributions to pay the principal and interest on qualified education loans up to a lifetime maximum of $10,000 per person.The SECURE Act was designed to improve retirement savings access and expand the flexibility of tax-advantaged accounts.
Among its provisions, the act significantly broadened the definition of “qualified higher education expenses” for 529 college savings plans. Before the SECURE Act, 529 funds were primarily restricted to current educational costs like tuition, fees, room, board and books.The legislation relaxed rules on 529s to allow for three additional benefits to borrowers:The SECURE Act also stipulated that if you use tax-free 529 plan earnings to pay student loan interest, you cannot “double-dip” and also claim the student loan interest deduction on your federal income taxes for that same interest.Are you able to use 529 funds to pay off your or your dependent’s student loan debt? That depends on what kind of 529 plan you have and how that money fits into your larger strategy for funding higher education.These educational savings plans are named after the number in the IRS tax code where they appear.
The purpose of a 529 plan is to save money for a beneficiary to pay for educational expenses separately from financial aid.There are actually two types of 529 plans: an educational savings plan and a prepaid tuition plan.Because prepaid tuition plans involve buying credits at a university rather than keeping money in an account, we will ...