By Tim Gorrell, Executive Director, Ohio Tuition Trust Authority

June 12, 2018

One of the most frequently asked question 529 college savings programs hear is, “What happens to the 529 if my child receives a full ride?” We certainly hope your child earns that amazing academic or athletic achievement; however, the odds do not seem to be in their favor.

general_070 copyAccording to the National Collegiate Athletic Association (NCAA), only around 2% of high school student-athletes receive some form of athletic scholarship at the Division I or II level. Moreover, even less are full-ride scholarships. Most scholarships will cover a portion of higher education expenses. Full-ride merit-based academic scholarships are just as rare as athletic ones.

However, there are plenty of smaller scholarships that can add up to cover college costs. In fact, Sallie Mae’s 2017 “How America Pays For College” report shows that 35% of higher education costs are now covered by scholarships and grants.

The good news is that if you’ve been saving in a 529 plan, your account is made to work in conjunction with scholarships. Here are some options on how to still use your college savings plan.

If the offered scholarship isn’t a full ride, your 529 plan can help to pay for the rest. Tuition, room and board, mandatory fees, books, supplies, computers and related equipment and services are 529-qualified higher education expenses. These qualified withdrawals are not subject to federal or state income taxes.

You can also hold onto the 529 account to use if your child decides to pursue dental, law, medical or other graduate school options. There’s also the option to transfer the 529 to another beneficiary who is related to your child — including siblings, stepsiblings, parents, stepparents, cousins, grandparents, nieces and nephews — to avoid tax penalties.

Another alternative is to withdraw the exact amount of the scholarship from the plan. As a non-qualified withdrawal, the earnings portion of the withdrawal will be subject to taxes. However, since the withdrawal is for your beneficiary earning a scholarship, a 10% federal tax penalty will not be imposed.

As for scholarships, always complete the Free Application for Federal Student Aid (FAFSA), even if you think you won’t qualify for aid. Most colleges, institutions, state, and local governments use the FAFSA information to determine the amount and types of aid each student can be awarded.

A good place to start your scholarship search is with your high school guidance counselor. There are many free comprehensive scholarship search engines available to help you and your student to research what other sources of financial assistance are available to cover higher education costs.

Everyone’s child has a bright future ahead of them. Scholarships and 529 plans make a great team to help students reach their dreams.

About the Author

Tim Gorrell is the executive director of Ohio Tuition Trust Authority. For more than 25 years, Ohio Tuition Trust Authority has sponsored and administered Ohio’s 529 Plan, CollegeAdvantage. Ohio’s 529 Plan oversees more than 636,000 accounts and over $11.3 billion in assets. Visit or call 1-800-AFFORD-IT (233-6734) for more information.