Using a 529 Plan for Graduate School: Pros and Cons

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A 529 savings account is a savings vehicle often used by parents and grandparents to pay for their children or grandchildren’s education, but college students shouldn’t rule out using a 529 plan for graduate school.

Many graduate schools and professional schools can be paid for with 529 funds, if they are deemed eligible by the U.S. Department of Education. Still, that doesn’t mean it’s always a good idea.

If you’re considering this option to fund your grad school education, go over these questions to make sure it’s right for you:

What is a 529 plan?

Essentially, a 529 savings account is a tax-advantaged, long-term investment account that can help savings grow at a low cost.

Because 529 plans are not necessarily set up for short-term savings or designed specifically with graduate school in mind, it may be wise to consider a few factors before investing in one.

However, if you already have a 529 plan, you could earmark some of the funds in the account for your advanced education, or you could open an account when you are already in college. There is not a time limit for using your 529 account and it can be passed onto another beneficiary if funds are not used up.

What are the advantages of a 529 for graduate school?

The main bonus of a 529 plan is funds are tax-free when you withdraw them to pay for your education. “The point of 529 Plans is to save on taxes,” said Mackenzie Richards, senior financial consultant at BankRI Investment Services in Providence, R.I. “Some states offer a deduction for contributions, they grow without being taxed, and any withdrawals used for qualified education expenses are also tax-free.”

Opening a 529 account merely to lower your tax burden, may not make sense if you are a college student with a part-time job, or with low earnings. “Most students don’t have sufficient enough income where they need to worry about their own taxes,” Richards said.

However, Ben Birken, a CFP with Woodward Financial Advisors in Chapel Hill, N.C., says he could see an advantage to using a 529 account if:

  • You have a high taxable income
  • You live in a state where 529 contributions are tax-deductible

“In that case, money that had been earmarked to pay for tuition could be deposited into a 529 plan in order to earn the tax deduction,” Birken said. Instead of investing funds and leaving them to grow, you’d withdraw them right away to pay for college costs. But, he noted, “Given the income profiles of most college students, I would think this would be pretty rare.”

Specifically, if a college student knows that graduate school is in their future, Birken says a 529 savings account could be a smart vehicle to work toward that dream.

“In this case, the time horizon for education expenses is longer than just an undergraduate experience,” Birken added. So you’ll have more opportunities to see savings grow. And you’ll probably be working and get greater benefits from 529 tax breaks.

What are the downsides?

“Although college students can certainly utilize 529 plans for qualified education expenses (think tuition, fees, room and board, and books), it may not be the best decision to open one with your high school graduation money,” Richards said.

That’s because as an investment account, funds in a 529 are held in stocks. And as with any investment, Richards said, “There is always the risk of your account value dropping.”

If such a drop coincides with the timing for when you’d need to withdraw funds, you could lose money. “Like any investments, 529 plans make the most sense when you have time to ride out any short-term volatility in the markets,” said Richards.

So, you might want to plan ahead if you believe graduate school is in your future to give your money time to grow.

And similarly, you’ll likely want to cash in your 529 once you do get to grad school.

“By the time tuition is due, we suggest that most of our clients exit almost completely out of stocks in their 529 plans,” said Birken. “The risk of a significant decrease in value right when the funds might be needed for tuition is too great.”

If you’re willing to try to eke out some last-minute gains on college savings in a 529, just be aware of the risks. Even if you choose to move your money into a more stable asset, Richards said, “it is still smart to keep the education money separate from everything else.”

Look for options to save for college besides a 529, such as a certificate of deposit or a high-yield savings account.

How do 529s impact other financial aid?

Your assets, including a 529 account in your name, will affect your eligibility for aid.

“A 529 savings account allows you to build an education fund within an individual investment account,” said Ronald Ramsdell, founder of College Aid Consulting Services. “Money you contribute is invested in one or more specific investment portfolios.”

You’ll have to list your financial information and assets on your FAFSA for graduate school. Therefore, a 529 account in your name could lower the amount of financial aid you’re granted more than if your parents held it.

“I recommend families create the account in the parent’s name,” Ramsdell said. “The three formulas colleges utilize to determine how much financial aid a student may receive will assess students’ assets much higher than the parents’ assets.”

Funds can be transferred from child to child or even a grandchild. Parents who have more than one 529 plan for their children can move funds from one beneficiary to another. If there is money left over in an account, or if one of the recipients ends up not going the college route, that money can be used for another child’s graduate school costs.

Who’s best suited to use a 529 plan graduate school?

Overall, a 529 account might not be the most beneficial option for college students. That being said, students interested in working through college or saving for a degree they won’t start for a few years might find a 529 savings plan to be a good choice.

Any funds left over in a 529 fund for undergraduate education could be used for graduate or professional schools. If you don’t have access to a 529 or if you are unable to fund one for a few years while you plan for graduate school, there are many other ways to pay for graduate degrees.

Many graduate students receive teaching fellowships at their universities. Or, you could find a job that offers tuition reimbursement. Research grants and graduate assistantships are sometimes part of a financial aid package, too.

Using a 529 plan to pay for graduate school can be done under the right conditions, but don’t worry if one won’t work for you. There are other possibilities to help you get an advanced degree.

Maya Dollarhide contributed to this report.

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2.25% – 6.88%4Undergrad
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1.89% – 5.90%5Undergrad
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2.39% – 6.01%Undergrad
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1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

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2 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.

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The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

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3 Important Disclosures for LendKey.

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Refinancing via is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.

4 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 7.33% APR (with AutoPay). Variable rates from 2.25% APR to 6.88% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.13% plus 2.37% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The discount will not reduce the monthly payment; instead, the interest savings are applied to the principal loan balance, which may help pay the loan down faster. Enrolling in autopay is not required to receive a loan from SoFi. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.  

5 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

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Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

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This information is current as of January 4, 2021. Information and rates are subject to change without notice.