Can You Use a 529 Plan to Pay Student Loans? What Borrowers Should Know

The SECURE Act of 2019 expanded how families can use 529 college savings plans, allowing them to pay off student loans and fund registered apprenticeship programs — not just tuition.

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Using a 529 Plan for Student Loans

You can now use up to $10,000 (lifetime limit) from a 529 plan per beneficiary to pay down qualified student loans.

Each sibling can also receive an additional $10,000, giving families flexibility if they have multiple students.

Withdrawals used for principal and interest payments are tax-free, but you can’t claim the student loan interest deduction on interest paid with 529 funds.

How Families Can Benefit

• Flexible use: Funds can be reallocated to another child without tax penalties.

• Leftover savings: Can repay loans or fund future education needs.

• Grandparent accounts: Wait until after sophomore year to avoid reducing a student’s FAFSA-based aid.

529 Plans for Apprenticeships

529 funds can also cover registered apprenticeship programs that include tuition, fees, books, tools, and supplies.

These programs are approved by the U.S. Department of Labor and exist in industries like healthcare, construction, and IT.

New Options Under SECURE 2.0

Starting in 2024, families can roll over up to $35,000 from a 529 plan into a Roth IRA, avoiding taxes or penalties — as long as the account is at least 15 years old.

Things to Keep in Mind

• Stay within the $10,000 lifetime loan limit per person.

• Withdraw only for qualified loans to avoid taxes or penalties.

• Track distributions carefully and plan timing to protect financial aid.

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