Can you use a 529 to Pay Student Loans?

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As of 2021, 43.2 million U.S. adults owe $1.75 trillion in student loan debt with an average student loan debt of $39,351, according to data review and reporting by EducationData.org. While it can be difficult to tackle this amount of debt after you graduate, the good news is that several strategies could help you pay it off more easily.

For example, if you have a 529 plan, you might be able to use leftover funds to pay down your student loan balance with no tax penalty.

If you’re wondering whether you can use a 529 plan to pay student loans, here’s what you should know:

What is a 529 plan?

Established in 1996, 529 plans (also known as qualified tuition plans) are a type of tax-advantaged investment account that can help families save for college. Anyone over the age of 18 with a physical U.S. address and a Social Security number or Tax ID number can start a 529 plan — you’ll just need to provide the Social Security number or Tax ID number of the intended beneficiary.

Contributions made to a 529 plan aren’t deductible from federal income taxes, though some states offer state-level income tax breaks to residents. However, money in a 529 account isn’t subject to taxes and can be withdrawn tax-free as long as it’s used to cover a qualified education expense (such as tuition or fees).

Keep in mind: If you use the money for non-qualified expenses (such as travel or research), you’ll have to pay federal taxes on the distribution — plus a 10% penalty.

Types of 529 plans

Two types of 529 plans are available, including:

Education savings plans: This is the typical kind of 529 plan and works similarly to a Roth IRA. You won’t get a tax deduction for contributions, but withdrawals are tax-free as long as you use the funds to cover qualified education expenses. This means you’ll avoid capital gains taxes on your college savings. Note that while these plans are sponsored by state governments, most of them don’t come with residency requirements.
Prepaid tuition plans: This type of plan allows you to save for education expenses while locking in current tuition rates at certain schools. Considering that tuition costs typically rise over time, a prepaid tuition plan could offer significant savings. However, these plans are available only at participating public in-state colleges and universities, which means you’ll have to make a long-term commitment to that school. Also note that the federal government doesn’t guarantee prepaid tuition plans. Instead, state governments sponsor most of these plans, and they typically come with residency requirements.

Learn More: How to Get Student Loans, Grants, and More for Adult Learners

Can you use a 529 plan for student loans?

Yes, you might be able to use a 529 plan to make student loan payments. In the past, withdrawing 529 plan funds for anything other than qualified education expenses came with a 10% federal tax penalty. But this rule changed when the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in 2019.

Under the SECURE Act, 529 plan beneficiaries can now use 529 plan funds to:

Make student loan payments: Beneficiaries can use up to $10,000 from a 529 plan to repay qualified student loan debt. The siblings of the beneficiary can also use up to $10,000 each to repay qualified student loans — for example, if a family has two children, they can withdraw up to $20,000 for student loan payments. Note that this $10,000 limit is a lifetime limit.
Pay for registered apprenticeship programs: Originally, you could only use 529 plan distributions to pay for traditional colleges and universities. The SECURE Act has expanded this to allow beneficiaries to pay for registered apprenticeship programs with no penalty.

Tip: If you have a 529 plan, it’s typically better to cover the beneficiary’s qualified education expenses with those funds before turning to student loans that will have to be paid back.

But if you end up with leftover funds in a 529 plan, you might consider using them to pay down student loan debt from one of the beneficiary’s siblings.

How to use a 529 plan for student loans

If you’d like to use your 529 plan funds to make a student loan payment, follow these four steps:

Review your state’s rules. While the SECURE Act took effect in 2019, only 37 states have updated their tax laws to classify student loans as a qualified expense. Before making a withdrawal, check to see if you’ll owe any state taxes on that amount.
Decide how much to withdraw. You can take out a lifetime maximum of $10,000 from a 529 plan to pay toward student loans. However, you might prefer to spread this amount over time — for example, if you’d like to give the investments in a 529 plan portfolio a chance to recover from a market downturn.
Request the withdrawal. You can typically request a withdrawal online, by mail, by fax, or by calling your plan’s administrator.
Make your student loan payment. The funds from a 529 plan distribution can be sent directly to the lender, sent to the beneficiary, or used as a reimbursement if you’ve already made student loan payments via check or electronic payment. Just be sure that the distribution and student loan payment happen in the same tax year — and keep records proving this. Otherwise, you might end up with a penalty.

Check Out: Student Loan Repayment Calculator: Estimate Your Payoff Date

Uses for leftover 529 money

In some cases, families might end up with leftover 529 plan funds — for example, maybe the beneficiary chose a less expensive school, enlisted in the military, or didn’t go to college. If you have unused funds sitting in a 529 plan, here are some penalty-free options to consider:

Change the beneficiary. You can switch the beneficiary of a 529 plan to an eligible family member of the original beneficiary — such as a sibling, first cousin, or parent.
Rollover the funds. If a sibling of the beneficiary has their own 529 plan, you could roll the leftover funds over into their account.
Pay the student loan debt of a sibling who has already graduated. If a sibling of the beneficiary has already graduated, you could use the leftover 529 plan funds to help them pay down their student loans.

Tip: It could be a good idea to time your 529 plan distributions based on how the market is faring. If the investments in your 529 portfolio have lost value due to market conditions, you might want to wait for the portfolio to recover before you take any distributions.

Consider refinancing to save money on your student loans

Another option for saving money on your student loans is refinancing. If you refinance your student loans, your old loans will be paid off with a new private loan — leaving you with just one loan and payment to manage.

Depending on your credit, refinancing might get you a lower interest rate — which could save you money on interest and even potentially help you pay off your loans faster. Or you could opt to extend your repayment term to reduce your monthly payments, though this means you’ll pay more in interest over time.

Keep in mind: While you can refinance both federal and private loans, refinancing federal student loans will cost you access to federal benefits and protections — such as income-driven repayment plans and student loan forgiveness programs.

If you decide to refinance your student loans, be sure to shop around and consider as many lenders as possible to find the right loan for your needs. Credible makes this easy — you can compare your prequalified rates from multiple lenders in two minutes.

Lender	Fixed rates from (APR)	Variable rates from (APR)	Loan terms (years)	Loan amounts
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.94%+	N/A	10, 15, 20	$7,500 up to up to $200,000 (larger balances require special approval)
Fixed APR: 2.94%+ Variable APR: N/A Min. credit score: Does not disclose Loan amount: $7,500 up to $500,000 Loan terms (years): 10, 15, 20 Max. undergraduate loan balance: $250,000 – $500,000 Time to fund: 4 months Repayment options: Immediate repayment, forbearance, loans discharged upon death or disability Fees: None Discounts: Autopay Eligibility: Must be a resident of Kentucky Customer service: Phone Soft credit check: No Cosigner release: After 12 months Loan servicer: Kentucky Higher Education Student Loan Corporation Max. graduate loan balance: $250,000 – $500,000 Credible Review: Advantage Education Loan review Offers Parent PLUS Refinancing : Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.15%+	1.83%+	5, 7, 10, 15, 20	$10,000 up to $250,000 (depending on degree)
Fixed APR: 2.15%+ Variable APR: N/A Min. credit score: Does not disclose Loan amount: $10,000 to $400,000 Loan terms (years): 5, 7, 10, 15, 20 Repayment options: Military deferment, forbearance Fees: Late fee Discounts: Autopay Eligibility: Must have a credit score of at least 720, a minimum income of $60,000, and must be a resident of Texas Customer service: Email, phone Soft credit check: Does not disclose Cosigner release: No Loan servicer: Firstmark Services Max. Undergraduate Loan Balance: $100,000 – $149,000 Max. Graduate Loan Balance: $200,000 – $400,000 Offers Parent PLUS Refinancing: Does not disclose
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.84%+¹	1.99%+¹	5, 7, 10, 15, 20	$10,000 to $500,000 (depending on degree and loan type)
Fixed APR: 2.84%+¹ Variable APR: 1.99%+¹ Min. credit score: Does not disclose Loan amount: $10,000 to $750,000 Loan terms (years): 5, 7, 10, 15, 20 Repayment options: Immediate repayment, academic deferment, military deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay, loyalty Eligibility: Must be a U.S. citizen or permanent resident and have at least $10,000 in student loans Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: After 24 to 36 months Loan servicer: Firstmark Services Max. Undergraduate Loan Balance: $100,000 to $149,000 Max. Graduate Loan Balance: Less than $150,000 Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.99%+²	2.94%+²	5, 7, 10, 12, 15, 20	$5,000 to $300,000 (depending on degree type)
Fixed APR: 2.99%+² Variable APR: 2.94%+² Min. credit score: Does not disclose Loan amount: $5,000 to $300,000 Loan terms (years): 5, 7, 10, 12, 15 Repayment options: Military deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay Eligibility: All states except for ME Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: After 24 to 36 months Loan servicer: College Ave Servicing LLC Max. Undergraduate Loan Balance: $100,000 to $149,000 Max. Graduate Loan Balance: Less than $300,000 Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	4.16%+	4.11%+	5, 7, 10, 15, 20	$5,000 to $500,000
Fixed rate: 4.16%+ Variable rate: 4.11%+ Min. credit score: 680 Loan amount: $5,000 to $500,000 Cosigner release: Yes Loan terms (years): 5, 7, 10, 15, 20 Repayment options: Academic deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay Eligibility: Available in all states, except MS and NV Customer service: Email, phone, chat Soft credit check: Yes Loan servicer: FirstMark Max. undergraduate loan balance: $500,000 Max. graduate loan balance: $500,000 Offers Parent PLUS refinancing: Yes Min. income: $65,000 (for 15- and 20-year products)
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.91%+⁵	2.91%+⁵	5, 10, 15, 20	$1,000 to $250,000
Fixed APR: 2.91%+⁵ Variable APR: 2.91%+⁵ Min. credit score: 700 Loan amount: $7,500 to $200,000 Loan terms (years): 5, 10, 15, 20 Repayment options: Immediate repayment, academic deferment, forbearance, loans discharged upon death or disability Fees: None Discounts: Autopay Eligibility: Must be a U.S. citizen or permanent resident and submit two personal references Customer service: Email, phone Soft credit check: Yes Cosigner release: After 36 months Loan servicer: Granite State Management & Resources (GSM&R) Max. Undergraduate Loan Balance: $150,000 to $249,000 Max. Graduate Loan Balance: $150,000 to $199,000 Offers Parent PLUS Refinancing : Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.43%+³	1.86%+³	5, 7, 10, 12, 15, 20	$15,000 to $250,000
Fixed APR: 2.43%+³ Variable APR: 1.86%+³ Min. credit score: 680 Loan amount: $15,000 to $250,000 Loan terms (years): 5, 7, 10, 12, 15, 20 Repayment options: Forbearance Fees: None Discounts: None Eligibility: Must be a U.S. citizen or permanent resident, have at least $15,000 in student loan debt, and have a bachelor’s degree or higher from an approved school Customer service: Email, phone Soft credit check: Yes Cosigner release: No Loan servicer: Mohela Max. Undergraduate Loan Balance: $250,000 Max. Graduate Loan Balance: $250,000 Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	3.47%+⁴	2.44%+⁴	5, 10, 15, 20	$5,000 – $250,000
Fixed APR: 3.47%+⁴ Variable APR: 2.44%+⁴ Min. credit score: 670 Loan amount: $5,000 to $250,000 Loan terms (years): 5, 10, 15, 20 Repayment options: Academic deferment, military deferment, forbearance Fees: Late fee Discounts: Autopay Eligibility: Must be U.S. citizen or permanent resident Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: Yes Max undergraduate loan balance: $250,000 Max graduate loan balance: $250,000 Offers Parent PLUS refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	4.44%+ ⁷	N/A	5, 7, 10, 12, 15, 20	Up to $300,000
Fixed APR: 4.44%+ ⁷ Variable APR: N/A Min. credit score: 670 Loan amount: Up to $300,000 Loan terms (years): 5, 7, 10, 15, 20 Time to fund: Usually one business day Repayment options: Academic deferral, military deferral, forbearance, death/disability discharge Fees: None Discounts: Autopay Eligibility: Available in all 50 states Customer service: Email, phone Soft credit check: Yes Cosigner release: After 24 months Max. undergraduate loan balance: $300,000 Max. graduate balance: $300,000 Offers Parent PLUS loans: Yes Min. income: None
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.49%+	1.9%+	5, 7, 10, 15	Up to $300,000
Fixed APR: 2.49%+ Variable APR: 1.9%+ Min. credit score: 700 Loan amount: $5,000 to $300,000 Loan terms (years): 5, 7, 10, 15 Max. undergraduate Loan Balance: $125,000 Time to Fund: 10 to 30 days Repayment options: Immediate repayment, forbearance Fees: Late fee Discounts: Autopay Eligibility: Must be a U.S. citizen or permanent resident and have already graduated with at least an associate degree from an eligible institution Customer service: Email, phone Soft credit check: Yes Cosigner release: After 12 months Loan servicer: LendKey Technologies Inc. Max. graduate Loan Balance: $175,000 Credible Review: LendKey Student Loans review Offers Parent PLUS Refinancing: No
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.95%+	N/A	7, 10, 15	$10,000 up to the total amount of qualified education debt
Fixed APR: 2.95%+ Variable APR: N/A Min. credit score: 670 Loan amount: $10,000 up to the total amount Loan terms (years): 7, 10, 15 Repayment options: Military deferment, loans discharged upon death or disability Fees: None Discounts: None Eligibility: Must be a U.S. citizen or permanent resident and have at least $10,000 in student loans Customer service: Email, phone Soft credit check: Yes Cosigner release: No Loan servicer: AES Max. Undergraduate Loan Balance: No maximum Max. Gradaute Loan Balance: No maximum Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.89%+	N/A	5, 8, 12, 15	$7,500 to $300,000
Fixed APR: 2.89%+ Variable APR: N/A Min. credit score: 670 Loan amount: $7,500 to $300,000 Loan terms (years): 5, 8, 12, 15 Repayment options: Does not disclose Fees: None Discounts: None Eligibility: Must be a U.S. citizen and have and at least $7,500 in student loans Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: After 12 months Loan servicer: PenFed Max. Undergraduate Loan Balance: $300,000 Max. Graduate Loan Balance: $300,000 Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.69%+	N/A	5, 10, 15	$7,500 up to $250,000 (depending on highest degree earned)
Fixed APR: 2.69%+ Variable APR: N/A Min. credit score: 680 Loan amount: $7,500 to $250,000 Loan terms (years): 5, 10, 15 Repayment options: Academic deferment, military deferment, forbearance, loans discharged upon death or disability Fees: None Discounts: Autopay Eligibility: Available in all 50 states; must also have at least $7,500 in student loans and a minimum income of $40,000 Customer service: Email, phone Soft credit check: Does not disclose Cosigner release: No Loan servicer: Rhode Island Student Loan Authority Max. Undergraduate Loan Balance: $150,000 – $249,000 Max. Graduate Loan Balance: $200,000 – $249,000 Offers Parent PLUS Refinancing: Yes
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About the author

Emily Guy Birken

Emily Guy Birken is a Credible authority on student loans and personal finance. Her work has been featured by Forbes, Kiplinger’s, Huffington Post, MSN Money, and The Washington Post online.

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