Hi there.
Just want to make sure I understand. I have a 529 plan that is for my daughter. She just started her first year and has taken a few thousand in loans in an effort to preserve the 529 as much as possible in case she goes to grad school.
In the event she doesn’t, however, can the 529 money be used to pay back the couple federal loans she has now taken?
Thanks!
Can you pay student loans with a 529?
byu/Addem_Subtractem inpersonalfinance
Posted by Addem_Subtractem
6 Comments
It can be used to pay off up to $10k in student loans
You can use a 529 account up to a lifetime limit of $10,000 to pay back student loan interest and principal.
[Source](https://www.fidelity.com/learning-center/smart-money/what-can-529-funds-be-used-for)
Interest rates on loans are going to outpace growth in the 529. Avoid loans as long as possible, and this means paying them back like NOW because they’re likely already accruing interest.
I know this doesn’t answer your question, but this is the bigger picture.
Why didn’t you use your 529 before taking a student loan?
You got your answer, but just an fyi for your daughter – depending on what she wants to go to grad school for, there could be a lot of funding options. I went to grad school for a humanities degree (I know, haha), but I refused to go anywhere I’d have to actually pay for myself. It worked out. Not saying it’s always possible, but just that saving 529 for grad school is a pretty bad idea if you have to take out loans now. The 529 growth during undergrad is def going to be outpaced by loan interest rates.
>>She just started her first year and has taken a few thousand in loans in an effort to preserve the 529 as much as possible in case she goes to grad school.
You’d want to tap the 529 first – that is a sure-thing.
Plus — If she “preserves” the 529 by taking a loan, that loan isn’t a fixed amount. The undergraduate loan’s interest will start earlier and grow larger over a longer period of time.