A 529 plan is a type of savings account that can help pay for college and other education expenses. If you’re among the more than 43 million Americans who have student loan debt, you might be wondering, can I use a 529 to pay student loans?
While money from a 529 plan can be put toward student loan debt, there are funding limits and other requirements to keep in mind. Read on to learn about how to maximize your 529 plan, plus other student loan repayment strategies to consider.
Key Points
• A 529 plan can be used to help pay off a beneficiary’s student loan debt.
• These plans can also be used to help pay for student loans of a beneficiary’s siblings or parents, as long as the account is transferred to them.
• There is a maximum $10,000 lifetime limit per beneficiary for using 529 funds for student loan repayment.
• Additionally, up to $35,000 in unused 529 plan funds can be rolled over to a Roth IRA to help borrowers save for retirement, with some restrictions.
• Besides using 529 funds, borrowers can also pay off student loan debt by making interest-only payments while still in school, signing up for automatic payments, or with student loan refinancing.
Understanding 529 Plans and Their Uses
Going to college in the U.S. is expensive — four years at a private university is approximately $234,512, and four years at an in-state public university is $108,584, according to 2025 data from the Education Data Initiative. To help families cover rising higher education costs, in 1996 Congress enacted Section 529 of the Internal Revenue Code, which established federal tax rules for 529 college plans.
Parents, grandparents, and students can open a 529 plan to help build college savings for themselves or a designated beneficiary. There are two types of 529 college savings plans: prepaid tuition plans and education savings plans.
The contributions and investments grow tax-free with either plan option, but there are some key differences. Prepaid tuition plans are typically offered by public colleges and allow in-state students to prepay tuition and fees at today’s rates. Education savings plans represent the majority of 529 college plans, as the funds can be used at any accredited school.
Families can deposit a maximum amount that ranges from $235,000 to $575,000 into these tax-advantaged investment accounts, depending on their state’s 529 contribution limits. Contributions aren’t eligible for a federal income tax deduction, but some states offer state income tax deductions.
Money withdrawn from a 529 college savings plan to pay for qualified educational expenses is tax exempt. This includes the following education-related costs:
• Tuition and fees for college, graduate, or vocational school
• Books and school supplies
• Room and board
• Special needs services and equipment
• Computers, internet access, and software related to school work
• Tuition and fees for elementary or secondary school (capped at $10,000 per year)
• Student loan payments
If funds from a 529 plan are used for nonqualified expenses, those withdrawals are subject to taxes and a 10% federal tax penalty.
If a family has other children who are planning to pursue higher education, it’s possible to transfer a 529 college savings plan with unused funds to another beneficiary.
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The SECURE Act and 529 Plans for Student Loan Repayment
Originally, 529 plans were limited to paying for higher education costs. But thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, 529 plans can now be used to pay for student loans — a maximum of $10,000 for a beneficiary. The lifetime limit per beneficiary applies regardless of whether a family has multiple 529 plans.
However, you can use a 529 account to pay student loans for other family members. The SECURE Act allows an additional $10,000 to be withdrawn from a 529 college savings plan to repay student loans for each of the beneficiary’s siblings. That means a family with three children could withdraw a maximum of $30,000 to pay off student loan debt.
Keep in mind that the plan holder is unable to claim any tax deductions for student loan interest paid with money from the 529 plan.
In addition to student loan repayment, the SECURE Act also lets plan holders roll over extra 529 funds into a Roth IRA retirement account. This helps borrowers jumpstart retirement savings, which might otherwise be delayed by student loan repayment. The lifetime limit for converting 529 funds is $35,000, and annual conversions cannot exceed the IRA contribution limit. Additionally, the 529 account must be open for at least 15 years to qualify for Roth IRA conversion.
Who Qualifies to Use a 529 for Student Loans?
The designated beneficiary of a 529 plan can use funds in the account to pay their student loans. Both federal student loans and private student loans qualify under the SECURE Act.
In addition, 529 funds can also be allocated to repaying student loans for a beneficiary’s siblings or even their parents. Because 529 plans can be transferred between beneficiaries, it’s possible to make a parent the designated beneficiary if they are still paying off student loans.
This can be helpful to parents who may have outstanding student loan debt from their own education or from financing or refinancing their child’s college expenses, such as with a Parent PLUS refinance loan.
Each beneficiary can pay a maximum of $10,000 of student loan debt using money in a 529.
Pros and Cons of Using a 529 for Student Loan Payments
A 529 savings plan is primarily a tool to save for education-related expenses, such as tuition, fees, and room and board. If you choose to use these funds for student loan payments, there are some advantages and drawbacks to keep in mind.
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Pros:
• Beneficiaries can repay up to $10,000 in student loans by using funds in a 529.
• Siblings and parents of a beneficiary can use up to $10,000 of 529 funds to repay student loans, provided that the account is transferred to them as a beneficiary.
• 529 plans can be used to pay off student loans that are for nonqualified expenses, such as health care or transportation costs.
• Up to $35,000 in any leftover funds can be rolled into a Roth IRA retirement account.
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Cons:
• A 529 may carry management fees, which can reduce overall savings.
• There is a lifetime limit of $10,000 per beneficiary to repay student loans.
• Remaining funds that can’t be rolled into a Roth IRA or transferred are subject to a 529 withdrawal penalty and a 10% federal tax penalty on any earnings.
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Alternative Ways to Pay Off Student Loan Debt Without a 529
For those who don’t have a 529 or don’t have funds left in their account to put toward student loan debt, there are several other student loan repayment strategies to consider.
• Make interest-only payments while you’re in school on student loans for which interest accrues, such as federal Direct Unsubsidized Loans.
• Pay down your student loan principal by making additional payments. Doing this may help reduce the amount of interest you owe over the life of the loan. (Check first for any prepayment penalties your loan might have.)
• Set up automatic payment on your student loans. Federal Direct Loan holders may be eligible for a 0.25% discount when they sign up for automatic payments, and some private student loan lenders offer a similar discount.
• Consider student loan refinancing. Refinancing with a private lender involves taking out a new loan to pay off your existing loan. The new loan comes with a new interest rate, loan term, and monthly payment. Ideally, you may be able to qualify for a lower interest rate or more favorable loan terms.
• Just be aware that if you refinance federal loans, they are no longer eligible for federal benefits or protections. Also, you may pay more interest over the life of the loan if you refinance with an extended term. Weigh the pros and cons of refinancing to determine if it makes sense for you.
The Takeaway
Thanks to the SECURE Act of 2019, beneficiaries of 529 plans can withdraw up to $10,000 to pay toward their own student loan debt or that of their siblings or parents. The $10,000 maximum is a lifetime limit per beneficiary.
Other ways to repay student loan debt include making interest-only payments on unsubsidized loans while you’re still in school, signing up for automatic payments, and student loan refinancing.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
Can you use a 529 plan to pay private student loans?
Yes, you can use a 529 plan to pay up to $10,000 in private student loan debt for the designated beneficiary of the plan, as well as each of their siblings.
Is using a 529 plan for student loan repayments tax-free?
Using a 529 plan for student loan repayments is tax-free as long as the withdrawals don’t exceed the lifetime limit of $10,000 per beneficiary.
What is the lifetime limit on 529 student loan repayments?
The lifetime limit on 529 student loan repayments is $10,000 per beneficiary — even if a beneficiary has more than one 529 plan.
Can parents use their 529 savings to pay off their own student loans?
Yes, parents can use a 529 to pay off their own student loan debt, up to a limit of $10,000, if they are named beneficiary on the account. A 529 plan can be transferred between beneficiaries (from child to parent, for instance) to use remaining funds.
Are there penalties for misusing 529 funds?
If 529 funds are not used for qualified education-related expenses, an individual could face a 10% penalty on the earnings accrued on the withdrawal, plus federal income tax.
photo credit: iStock/Dobrila Vignjevic
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