I’m in the midst of a wonderful online course on Cutting the Cost of College, created and led by college financial aid expert Lynn O’Shaughnessy and her associate Michelle Kretzschmar. The majority of independent college counselors constantly tour and complete continuing education credits in order to better help their families, and I take this responsibility very seriously. Today I learned more about something I’ve wondered about, and that I know families fret about: the impact of 529 college savings accounts on qualifying for need-based financial aid.
The answer is that 529 accounts exert minimal impact on dampening aid as they are classified as a parental asset (not a student asset, interestingly enough), AND because the Parents’ Education Savings and Asset Protection Allowance shields a fair portion of parental assets. The way this works is the higher the age of the older parent, the higher the amount that is shielded. Unfairly and unsportingly, single parents can shelter quite a bit less. A married couple with an older parent aged 50 can shelter $34,600 under current rules; a single parent at this age can shelter just $8000.
Beyond this, the degree to which assets above these amounts are assessed isn’t exactly punitive under the present rules: FAFSA assesses these amounts at $5.64 and PROFILE at $5 per $100 in savings. Therefore, as Lynn shows, a couple with $50,000 in assets would experience a drop of only $2820 in financial aid eligibility. That is far below what many folks fear, so that is truly good news. The bad news is that the government continues to reduce the size of the asset protection allowance, so the current allowance isn’t as generous as before. The figures above reflect the current allowance, so for now it’s still a good deal and therefore a good reason to keep socking away funds in a 529 plan!