A parent-owned 529 plan has only a small effect on financial aid: it counts as a parent asset on the FAFSA and reduces your aid eligibility by at most 5.64% of the account's value. A grandparent-owned 529 now has no effect at all on federal aid, because the 2026-27 FAFSA no longer counts those assets or their distributions. So a 529 is one of the most aid-friendly ways to save for college, and the small impact is far outweighed by the money you save.
Families often worry that saving in a 529 will cost them aid. The reality is the opposite for most: the effect is minor, and recent rule changes made it even smaller. Here is how it works.
How does a parent-owned 529 affect the FAFSA?
A parent-owned 529 is reported as a parent asset, and parent assets are assessed at a maximum of 5.64%, so every $10,000 saved reduces aid by no more than about $564. That is a small price for tax-free growth and the money itself being available for college. A 529 owned by the student (a dependent) is also treated as a parent asset, so the same low rate applies.
In other words, saving in a 529 almost never costs you more aid than it provides in value. For how assets fit into the formula, see what is the Student Aid Index (SAI).
Do grandparent-owned 529 plans affect aid now?
No, not for federal aid. Under the 2026-27 FAFSA, grandparent-owned 529 assets are not reported, and distributions from them are no longer counted as student income. This closes the old "grandparent penalty," where a grandparent's 529 withdrawal could reduce aid by up to 50% of the amount. Grandparent 529 money is now effectively invisible to the federal aid formula.
This makes grandparent 529s a powerful, aid-friendly way to help. For more on that route, read how grandparents can help pay for college in 2026.
What about the CSS Profile and private colleges?
The good news about grandparent 529s applies to the FAFSA, but the roughly 200 colleges that use the CSS Profile set their own rules. Many CSS Profile schools, typically well-funded private colleges, still ask about grandparent contributions and assets, so a grandparent 529 can affect their institutional aid even though it does not touch federal aid. Always check the rules at CSS Profile schools on your list.
Understand the second form in what is the CSS Profile, and which schools require it in 2026.
Is it still worth saving in a 529 if you want aid?
Yes. The small FAFSA impact of a parent 529 is far smaller than the benefit of having money saved, plus tax-free growth, and most aid for higher-income families is loans anyway. Choosing not to save to protect aid usually backfires, because you give up real money to avoid a tiny reduction. Save in the 529 and treat the minor asset effect as a footnote.
Put the 529 in context with our guide to paying for college: building your funding stack.
Your next step
A 529 barely affects financial aid: a parent-owned account costs at most 5.64% of its value in aid, and a grandparent-owned account now costs nothing on the FAFSA, though CSS Profile schools may still count it. Keep saving, file the FAFSA, and confirm the rules at any private colleges on your list. Read our complete 2026-27 financial aid guide, then create your free CollegeLens plan to see how your savings fit your real cost.
You're doing the hard, smart work of saving without fear of losing aid. That's exactly how families build college funds the smart way.
-- Sravani at CollegeLens