July 21, 2021

Can You Use A 529 Account To Pay Student Loans?

Chipper Help

Student loans have become one of the biggest consumer debt types in the country. On average, college students will each incur $37,500 in debt to finish their tertiary education. This predicament concerns about 42.9 million Americans.

Because of the struggles associated with paying this debt, many professionals wonder if they can use a 529 account to pay student loans. The answer is: yes, you can. Let’s go through the conditions surrounding this new development.

What Is a 529 Account?

In the 1990s, US senators created the 529 plan to help individuals pay for higher education. The tax-advantaged savings plan enables borrowers to grow their money for a beneficiary, typically a child, grandchild, or spouse.

Each state, including the District of Columbia, offers at least one type of 529 plan. Below are the two types of 529 plans, each with tax advantages designed to help individuals save up for college expenses.

  • Prepaid tuition plans: These plans allow consumers to purchase college units for future use at any participating organization. Most of these plans allow users to prepay tuition at current prices, beating inflation. In most cases, the state backs these plans.
  • Savings plans: These plans enable consumers to open accounts for stock and bond investments. Most plans choose conservative options as the beneficiary becomes of age. Unlike prepaid tuition plans, the state doesn’t back college savings plans.

529 Plan Adjustments

Since the account’s inception, the government has applied several changes that will benefit individuals with student loans. Let’s look at three such adjustments: H.R. 529, Tax Cuts and Jobs Act (TCJA), and Setting Every Community Up for Retirement Enhancement (SECURE).

H.R. 529

Congress members Lynn Jenkins and Ron Kind initiated H.R. 529, also known as the ABLE Account Improvement Act of 2017. The goal of the bill was to encourage business owners to contribute to employees’ 529 plans through tax incentives.

The government simplified processes for employers who wanted to add to their workers’ 529 plans. For one, they provided tax credits to small businesses that made plan contributions to shoulder administrative costs.

Additionally, the legislation removed conditions that penalized taxpayers who used their funds to pay off student loans. Currently, individuals who use their plans for nonqualified expenses receive a 10% federal tax penalty.


In 2017, President Donald Trump signed the TCJA into law, which increased the benefits of 529 plans for individuals. Initially, a taxpayer could only use a 529 account for post-secondary education. However, the TCJA allowed individuals to use $10,000 from their 529 plans annually for elementary or secondary school expenses, including public, private, and religious schools.

Some states also allow deductions against state income tax for 529 plans. For example, New Yorkers with 529 accounts may reduce state income up to $10,000 annually, leading to more than $1,000 in savings.


In 2019, President Donald Trump approved the SECURE Act, another law that improved 529 account benefits. Below are some of the changes the government implemented under the new law:

  • Taxpayers can now use their 529 plans to cover apprenticeship program expenses such as books, equipment, and supplies.
  • Now, account holders can withdraw up to $10,000 to pay specific student loans but with conditions. First, there is a $10,000 lifetime limit for a beneficiary and each sibling. Secondly, they cannot claim student loan interest from this amount.

The Verdict

Can you use a 529 account to pay student loans? Yes, you can. However, there are rules on using it for your beneficiaries. Like with any financial product, it’s best to do your research and ask an expert how it works.

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