Individuals can utilize funds from a 529 plan to pay off up to $10,000 in student loan debt, according to provisions established by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

This legislation expanded the definition of qualified higher education expenses to include the repayment of student loans, permitting tax-free distributions for both principal and interest on qualified education loans, up to a lifetime maximum of $10,000 per beneficiary. The SECURE Act also allows for an additional $10,000 lifetime limit to be used for the student loans of each of the beneficiary's siblings.

SECURE Act Provisions

The SECURE Act, enacted to enhance retirement savings access and increase the flexibility of tax-advantaged accounts, broadened the scope of qualified higher education expenses for 529 college savings plans. Prior to this act, 529 funds were generally restricted to covering immediate educational costs such as tuition, fees, room, board, and books.

The act introduced three key benefits for borrowers:

  • Student Loan Repayment: Beneficiaries can take tax-free distributions to pay the principal and interest on qualified education loans, including most federal and private student loans.
  • Lifetime Limits: A strict lifetime maximum of $10,000 per 529 plan beneficiary was established for student loan repayments.
  • Sibling Provision: An additional lifetime limit of $10,000 is available to pay off the student loans of each of the beneficiary’s siblings (brother, sister, stepbrother, or stepsister) without requiring a formal change of beneficiary on the account.

It is important to note that if 529 plan earnings are used to pay student loan interest, the account holder cannot also claim the student loan interest deduction on their federal income taxes for that same interest to avoid “double-dipping.”

Understanding 529 Plans

529 plans, named after the section of the IRS tax code where they are detailed, are designed to facilitate savings for educational expenses separate from financial aid applications. There are two main types of 529 plans: educational savings plans and prepaid tuition plans. The focus for student loan repayment typically centers on educational savings plans, where an owner invests money for a beneficiary's future education expenses.

Withdrawals from 529 plans are generally tax-free for qualified student expenses. Taxes are incurred only if a distribution exceeds the actual expense amount, with the excess portion becoming taxable.

The One Big Beautiful Bill Act (OBBBA)

Signed into law in the summer of 2025, the One Big Beautiful Bill Act (OBBBA) further enhanced the flexibility and utility of 529 savings accounts. This legislation doubled the annual tax-free withdrawal limit for K–12 education expenses from $10,000 to $20,000 and expanded the definition of qualified educational expenses to include K–12 curriculum materials, books, online educational tools, tutoring, standardized test fees, dual-enrollment college courses, and special needs educational therapies.

The OBBBA also permanently extended 529-to-ABLE account rollovers and updated the accounts to support career-focused learning, allowing 529 funds to be used for approved postsecondary workforce credentials, professional licenses, and technical certifications.

Impact on Student Loan Borrowers

While the OBBBA broadened the scope of qualified educational expenses, it did not extend the types of loans eligible for 529 plan repayment. The rules for using 529 funds for student loan repayments remain governed by the 2019 SECURE Act, maintaining the $10,000 lifetime maximum per beneficiary for federal or private student loan principal and interest. Borrowers should also consult local tax laws, as some states may impose their own taxes or penalties on loan repayments made with 529 funds.

Strategic Use of 529 Funds

Ideally, 529 funds are best used to avoid the need for student loans altogether. However, when circumstances require using these funds for loan repayment, strategic planning is essential. For families with multiple children, funds can be reallocated. For instance, unused funds from one beneficiary's 529 account can be transferred to another sibling to help with their student loan debt. Unused 529 funds may also be rolled over into a Roth IRA, up to a lifetime limit of $35,000, provided the account has been open for at least 15 years and annual IRA contribution limits are met. Additionally, leftover 529 money can be used to pay for professional certifications or registered apprenticeship programs under newer regulations.

The fundamental aspect of using 529 money for student loans, the $10,000 lifetime limit, remains unchanged. The evolving landscape of borrowing limits for graduate studies and the broader accessibility of 529 funds for various educational and career pathways necessitate careful consideration of scholarships, college costs, and savings strategies.