Since siblings' UTMA 529s don't get reported on the FAFSA, but the
student's UTMA 529 is counted as a parent asset, each of my kids would
have a different amount listed on the FAFSA as parent assets. The
amounts would be vastly different because most of my son's money will
have been used by the time my youngest starts college. We'll have
three children in college at the same time, and two of them are going
to the same school. I'm concerned, even though I think having
different amounts is correct, that this might make the financial aid
— Donna R.
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The statutory language in the Higher Education Act of 1965 is somewhat
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ambiguous concerning the treatment of custodial 529 plan accounts
owned by a sibling of a dependent student.
The College Cost Reduction and Access Act of 2007 (P.L. 110-84)
changed the treatment of qualified education benefits effective July
1, 2009. This legislation amended section 480(f)(3) of the Higher
Education Act of 1965 to treat qualified education benefits that are
owned by a dependent student as though they are assets of the parent,
not the student. The statutory language now reads: "A qualified
education benefit shall be considered an asset of (A) the student if
the student is an independent student; or (B) the parent if the
student is a dependent student, regardless of whether the owner of the
account is the student or the parent." Qualified education benefits
include 529 college savings plans, prepaid tuition plans and Coverdell
Education Savings Accounts.
Clearly, if the applicant is a dependent student, any custodial 529
plan accounts owned by the applicant are reported as parent assets, as
are any regular 529 plan accounts owned by the parents. In particular,
the parent assets include not just the parent-owned 529 plan accounts
that name the applicant as a beneficiary, but also parent-owned 529 plan
accounts that name anybody else as a beneficiary, such as the
This interpretation is reflected in the printed FAFSA instructions,
which state "For a student who must report parental information, the
accounts are reported as parental investments in question 89,
including all accounts owned by the student and all accounts owned by
the parents for any member of the household." The online FAFSA
instructions provide similar advice: "Note: Students who must report
parental information on this form should report all qualified
educational benefits or education savings accounts owned by the
parents and/or the dependent student as part of the parental assets."
The 2011-12 Application and Verification Guide provides a similar
interpretation: "Qualified tuition programs (QTPs, also known as
section 529 plans because they are covered in section 529 of the IRS
tax code) and Coverdell education savings accounts are grouped
together in the law as qualified education benefits and have the same
treatment: they are an asset of the owner (not the beneficiary because
the owner can change the beneficiary at any time), except when the
owner is a dependent student, in which case they are an asset of the
parent. When the owner is some other person (including a non-custodial
parent), distributions from these plans to the student count as
untaxed income, as money received
But what about custodial 529 plan accounts that are owned by a sibling
of the student? Are they reported as an asset of the parents on the
student's FAFSA, as they would on the sibling's FAFSA? Or are they not
reported on the student's FAFSA because they are owned by neither the
student nor the parent?
The most plausible interpretation is that custodial 529 plan
accounts owned by the student's siblings are not reported on the
student's FAFSA because neither the student nor his/her parents own
the account. In the statutory language in section 480(f)(3) of the
Higher Education Act of 1965, the phrase "the student" is
referring to the applicant, not students generally.
However, there is still enough ambiguity that a college's financial
aid administrator may insist on a different interpretation where
custodial 529 plan accounts owned by a sibling must be reported as a
parent asset. They might note that sibling 529 plan accounts that are
owned by a parent are reported as parent assets on the FAFSA, and
argue that it doesn't make sense for custodial 529 plan accounts owned
by a sibling to be treated any differently. (It really doesn't make
sense, but the law doesn't always make sense. For example, the current
statutory language corrected an error in the previous statutory
language, and may eventually be amended to resolve this ambiguity.)
Until the US Department of Education issues clear guidance to clarify
whether custodial 529 plan accounts owned by a student's siblings are
reported as parent assets on the student's FAFSA, the interpretation
is left to the discretion of the college's financial aid
administrator, and the decision of the financial aid administrator is
If 529 plan accounts owned by a student's siblings are not reported as
a parent assets on the student's FAFSA, this can yield different
figures for parent assets on the student's FAFSA and a sibling's FAFSA. If
both the student and the sibling are enrolled at the same college,
this discrepancy will be considered conflicting information.
Conflicting information must be resolved before financial aid can be
disbursed. Conflicting information can be resolved by explaining that
the discrepancy is not really conflicting information, or by changing
one or more of the data sources to eliminate the discrepancy.
When the college's financial aid administrator asks about the
discrepancy, the family can respond by noting that the discrepancy is
due to the treatment of custodial 529 plan accounts. The financial aid
administrator may either agree with the family or insist on changing
the parent assets reported on both FAFSAs to include all sibling-owned
529 plan accounts.
Incidentally, the term "financial aid officer" may offend some
financial aid administrators even though the Higher Education Act of
1965 uses the terms interchangeably, because that's like calling them
the financial aid police. The most common job titles are "financial
aid administrator", "financial aid counselor", "financial aid
adviser", "director of financial aid" and "director of student