How 529 Savings Can Be Used to Repay Student Loans After Recent Tax Law Changes

The SECURE Act of 2019 expanded the definition of qualified higher-education expenses, allowing 529 plan beneficiaries to withdraw up to $10,000 tax-free for student-loan principal and interest, with a separate $10,000 lifetime allowance for each sibling’s loans. This provision remains the governing rule despite the One Big Beautiful Bill Act’s passage in the summer of 2025, which doubled the K-12 withdrawal limit and added new qualified expenses such as tutoring and vocational certifications.

However, the newer law did not increase the types or amounts of loans that can be repaid with 529 funds. Families must also watch state tax regulations, as some jurisdictions may tax or penalize loan-repayment withdrawals. Financial advisers recommend prioritizing 529 savings to cover tuition before taking loans and suggest moving unused funds between siblings or rolling excess balances into Roth IRAs or ABLE accounts where permitted. Shaan Patel of Prep Expert emphasizes choosing less expensive schools or community colleges to preserve 529 balances for graduate-level costs.