Big changes to how the federal government finances higher education were introduced in 2025, and many potential and former students may be wondering if they can still use funds from a 529 account to pay down student loans.

The short answer is yes. 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 expanded the definition of qualified higher education expenses to include the repayment of up to $10,000 in student loans. This allows 529 plan beneficiaries to take tax-free distributions to pay the principal and interest on qualified education loans up to a lifetime maximum of $10,000 per person.

What is the SECURE Act?

The SECURE Act was designed to improve retirement savings access and expand the flexibility of tax-advantaged accounts. Among its provisions, the act significantly broadened the definition of “qualified higher education expenses” for 529 college savings plans.  

Before the SECURE Act, 529 funds were primarily restricted to current educational costs like tuition, fees, room, board and books. The legislation relaxed rules on 529s to allow for three additional benefits to borrowers:

• Student loan repayment: The act allowed 529 plan beneficiaries to take tax-free distributions to pay the principal and interest on qualified education loans (including federal and most private student loans).
• Lifetime limits: The law imposed a strict lifetime limit of $10,000 per 529 plan beneficiary for student loan repayments.
• The sibling provision: An additional lifetime limit of $10,000 can be used to pay off the student loans of each of the beneficiary’s siblings (brother, sister, stepbrother, or stepsister) without needing to officially change the beneficiary on the account.  

The SECURE Act also stipulated that if you use tax-free 529 plan earnings to pay student loan interest, you cannot “double-dip” and also claim the student loan interest deduction on your federal income taxes for that same interest.

Are you able to use 529 funds to pay off your or your dependent’s student loan debt? That depends on what kind of 529 plan you have and how that money fits into your larger strategy for funding higher education.

What is a 529 plan?

These educational savings plans are named after the number in the IRS tax code where they appear. The purpose of a 529 plan is to save money for a beneficiary to pay for educational expenses separately from financial aid.

There are actually two types of 529 plans: an educational savings plan and a prepaid tuition plan.

• Education savings plan: This plan allows the plan owner to help the beneficiary save for future tuition or education expenses at elementary or secondary public, private or religious schools by opening an investment account.
• Prepaid tuition plan: This plan allows the plan owner (usually a parent) to help the beneficiary (usually a child) save for future tuition expenses by pre-purchasing credits or units from a postsecondary institution that participates in a prepaid tuition plan.

Because prepaid tuition plans involve buying credits at a university rather than keeping money in an account, we will focus on education savings plans here.

A significant benefit to 529 plans is that withdrawals are tax-free for student expenses, including tuition. The only way these withdrawals can be taxed is if the distribution amount exceeds the expense amount. In this instance, that extra portion of the distribution is taxable.

How 529s changed after the One Big Beautiful Bill Act (OBBBA)

Signed into law in the summer of 2025, the One Big Beautiful Bill Act (OBBBA) significantly expanded the flexibility and utility of 529 savings accounts. 

The legislation doubled the annual tax-free withdrawal limit for K–12 education from $10,000 to $20,000 and broadened the definition of qualified educational expenses. Under the new rules, families can use 529 funds for K–12 curriculum materials, books, online educational tools, tutoring, standardized test fees, dual-enrollment college courses and special needs educational therapies. 

The Act also permanently extended 529-to-ABLE account rollovers and modernized the accounts for career-focused learning, allowing 529 funds to pay for approved postsecondary workforce credentials, professional licenses and technical certifications. 

What this means for student loan borrowers

The OBBBA did not expand the types of loans eligible for 529 plan repayments. Student loan repayments using 529 funds remain governed by the 2019 SECURE Act, which allows a lifetime maximum of $10,000 per beneficiary to pay off federal or private student loan principal and interest. 

Account holders can also use an additional $10,000 lifetime allowance for each sibling of the primary beneficiary. However, borrowers should check local tax laws, as certain states do not follow federal guidelines and may subject loan repayments to state income taxes or penalties.

How to use a 529 plan towards student loans

The best way to optimize 529 funds is to use them to avoid taking out student loans. But life happens. The most likely scenario for needing to use 529 money to pay off student loans is where a family has several children with different educational expenses, and they want to move money from one beneficiary to another.

Take this hypothetical scenario: A family has three children who are two years apart, a 22-year-old, a 20-year-old and an 18-year-old. All three children have 529 accounts funded over the years, but the oldest is starting graduate school in the humanities, the middle child wants to go to medical school and the youngest is considering skipping college to start a business.

Depending on how much money the oldest child’s undergraduate education costs, their best move is to use as much of the remaining 529 money to pay for their graduate program before taking out loans. If they do need to take out loans, federal loans are the best kind of debt to have. Other forms of debt, such as credit card debt, aren’t covered by 529 plans.

The second child is in a tighter situation. The OBBBA made borrowing for graduate school significantly more difficult. For non-professional programs, borrowing is capped at $20,000 per year and $100,000 for a lifetime total. For professional programs like medical school, the caps are $50,000 per year and $200,000 for a lifetime.

Shaan Patel, founder of Prep Expert, says students who know they want to attend an expensive professional school should reserve their “borrowing limits for later on in life and try to reduce your cost of underground as much as possible.” Though our hypothetical middle child may have been ambitious enough to attend a prestigious private university, Patel says, “attending a less prestigious university than you were planning to go to, like a great state school,” will preserve money in a 529 for the heavier lift of graduate school.

“We even had some students do the option of attending community college for the first two years to get their prerequisites completed,” to save money for planned graduate education, he said.

Of course, if the entrepreneurial third child doesn’t use her 529 money, $10,000 of that money can be transferred tax-free to our future doctor to pay off student loans. And if there is still money in the account, the youngest child can roll over $35,000 (lifetime total) into a Roth IRA. If they decides to get a professional certification, new rules in the OBBBA say leftover 529 money can be used to pay for that.

The bottom line

The basic math for paying student loans with 529 account money hasn’t changed. You can use $10,000 of money in a 529 account without penalty to pay for student loans.

What has changed is the amount of money that can be borrowed for expenses like graduation school, and that is where strategizing the best use of scholarships, cost-benefit analysis around college costs and money saved in an education savings account comes into play.