A SECURE way to pay down student loans

Student debt continues to spiral: $1.5 trillion in student loans is owed by nearly 45 million Americans.1 The government took a step toward easing debt loads with the Setting Every Community Up for Retirement (SECURE) Act, which was signed into law in December 2019.


The Act now allows 529 college savings plan account holders to withdraw up to $10,000 tax free for payments toward the qualified education loans of the account’s beneficiary and siblings. Now, instead of switching beneficiaries or withdrawing the excess balance and paying taxes, parents and grandparents have another option.

There are a few caveats:

  • Loans paid with tax-free 529 plan balances aren’t eligible for the student loan interest deduction on federal tax returns.
  • The $10,000 is a lifetime limit, per plan beneficiary. So if a child’s parents and grandparents have separate 529 accounts for him or her, they can’t both withdraw $10,000 to pay for a loan. 

Federal student loans as well as many private student loans are eligible. The legislation is retroactive to the beginning of 2019.  

Apprenticeship programs are now qualified education expenses

The SECURE Act also recognizes the importance of apprenticeship programs. Students who are pursuing an apprenticeship may use 529 plan distributions tax free to pay for fees, textbooks, supplies, and equipment required for a program that’s registered and certified with the U.S. secretary of labor under the National Apprenticeship Act. You can see if a particular apprenticeship program is eligible on the U.S. Department of Labor website.

Check with your state

Before you make a withdrawal for either a loan payback or apprenticeship program, be sure to check with your state, as some states haven’t yet enabled legislation to include student loans and/or apprenticeships as a qualified 529 plan expense for state tax purposes. Consult with your financial professional, who can help you determine your options.