As higher education costs continue to rise, families and students are looking for smart, tax-advantaged ways to save. Enter 529 plans. Designed to make higher education more affordable, these plans offer flexibility, long-term growth potential, and a path toward financial confidence. But despite their benefits, misconceptions still prevent many families and students from using them.
For colleges and universities, this presents both a challenge and an opportunity. Many families shy away from 529 plans due to fears about financial aid penalties, limited usage options, or lack of flexibility. These myths can lead to confusion, missed savings opportunities, and financial stress that ultimately impacts enrollment decisions, student success, and retention.
For higher education leaders committed to improving access and affordability, helping students and their families better understand how 529 plans work is an important step. By proactively addressing these misconceptions through financial wellness programs, institutions can build trust, improve financial literacy, and strengthen the overall student experience.
At iGrad, we work with colleges and universities to offer personalized, scalable financial literacy programs that empower students to make informed choices. Let’s break down some common 529 plan myths and explore how your institution can support financial literacy efforts that drive real impact.
Myth #1: 529 plans hurts your chances of receiving financial aid
The reality: 529 savings have a minimal impact on financial aid eligibility.
When owned by a parent, a 529 account is considered a parental asset under FAFSA. Meaning it is assessed at a much lower rate than student-owned assets (5.64% vs. 20%).1 And qualified withdrawals aren’t counted as income, so they don’t reduce aid eligibility.
Why it matters to higher ed: This myth keeps low and middle-income families from building savings that could reduce student debt. Institutions can help by incorporating 529 plan education into onboarding, admissions, or financial literacy workshops.
Myth #2: 520 plan funds can only be used for tuition
The reality: 529 plans cover a wide range of qualified education expenses.
529 funds can be used for books, supplies, technology, and room and board. Plans now also support K-12 education and up to $10,000 in student loan repayment.
Why it matters to higher ed: Addressing this myth can help students plan for the total cost of attendance.
Myth #3: You lose money if your child doesn’t go to college
The reality: 529 plans are more flexible than you might think.
If your child doesn’t end up going to college, the funds can be transferred to a sibling or another family member. Starting in 2024, the SECURE 2.0 Act allows up to $35,000 of unused 529 funds to be rolled over into a Roth IRA as long as certain criteria are met.2
Myth #4: Only wealthy families benefit from 529 plans
The reality: 529 plans can be great for families across income levels and state incentives typically help enhance their value.
Many states also offer additional tax incentives for their residents who contribute to their state’s 529 plan. These benefits may include state income tax deductions or credits for contributions made to the plan, reducing the individual’s state tax liability.
Why it matters to higher ed: The perception of 529s as an “elite” tool undermines equity goals. Financial wellness initiatives can help normalize savings and financial literacy across your entire student population.
How Higher Ed Can Take Action
Colleges and universities can take this opportunity to provide the trusted guidance and tools families need to make smarter financial decisions. By integrating clear, myth-busting 529 plan education resources into student programming, admissions, and onboarding, institutions can:
- Increase families’ financial literacy and reduce confusion.
- Encourage savings behaviors that support enrollment and persistence.
- Improve outcomes related to student loan borrowing and repayment.
- Reinforce their institution as a partner in student success.
Financial Literacy Supports a More Confident Campus
529 plans are just one part of a more broad conversation about financial literacy and the cost of higher ed. The institutions that take an active role in that conversion, by offering digital, scalable financial literacy resources, stand to build stronger, more prepared, and more engaged student communities.
Ready to learn how your institution can integrate financial literacy into your enrollment and student support strategy? Schedule a call with us today to learn more about how iGrad helps support our partners in higher ed.
- Bright Start. “How does a 529 college savings plan impact financial aid?”
- Saving For College. “529 to Roth IRA: Rollover Rules, Conversion Guide, and FAQs”
