Dept of Education explains how 529 changes affect 2006-07 school year

In a "Dear Colleague" letter (GEN-06-10) the U.S. Department of Education provides financial aid administrators with guidance on implementing changes made by the Higher Education Reconciliation Act of 2005 to the treatment of 529 plans and Coverdell ESAs for the 2006-07 award year. FAFSAs have already been filed by many students based on old law.

The guidance makes it clear that dependent students owning 529 plans and ESAs should have an adjustment made to remove any value that might have been included on their FAFSAs. A couple of other interesting items are noted:

- Parent-owned 529s must be included even when the designated beneficiary is someone other than the student applying for financial aid.

- 529s owned by grandparents or other third-parties are normally not included as an asset of the student or parent, but that financial aid officers may use "professional judgment" when warranted to count these assets.

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