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Congress passes bill that will change financial aid treatment of 529s

(September 8, 2007) - Both the House and Senate yesterday voted to pass the College Cost Reduction and Access Act (H.R. 2669). The White House has signaled the intent of the President to sign the bill into law.

The major provisions of the bill would increase the maximum Pell Grant from $4,310 today to $5,400 by 2012, cut the interest rate on subsidized Stafford Loans in half from 6.8% to 3.4% over five years, and reduce government payments to banks and agencies making student loans.

Under the bill, dependent students with self-owned 529 accounts and Coverdell ESAs will no longer be able to exclude those assets in the determination of financial need, effective with the 2009/2010 school year. Instead they will be treated as parent assets, the same as parent-owned 529s and ESAs.

The bill also clarifies that tax-free distributions from a 529 plan, from a non-529 state prepaid tuition plan (i.e. Massachusetts U.Plan), or from a Coverdell ESA are not reportable as income or support on the federal financial aid application.

For more information, click here.

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