Frequently Asked Questions - New York's 529 College Savings Program
How is New York's 529 College Savings Program structured as a college savings vehicle?
Under the New York 529 program, an individual makes contributions to an account which is established for the purpose of meeting the qualified higher education expenses of a designated beneficiary. The designated beneficiary can be any student. The individual making contributions is the account owner. An account owner may be a parent, the student or anyone else, and the account owner retains the right to change the designated beneficiary or withdraw the funds for purposes other than the beneficiary's college education. In order for a withdrawal to be a qualified withdrawal for the New York 529 Program, it must be made for qualified higher education expenses.
What is a qualified withdrawal?
Qualified withdrawals are those used to pay for the "qualified higher education expenses" of the student-beneficiary. To be considered a qualified withdrawal, the institution at which the student is enrolled must qualify as an "eligible educational institution," and the expenses the funds are being used for meet the Internal Revenue Service (IRS) criteria as "qualified higher education expenses." Colleges should note, the determination of qualified higher education expenses, and the documentation that funds are used for their intended purpose are solely the responsibility of the account owner and/or student-beneficiary.
What are qualified higher education expenses?
To qualify for federally tax-free withdrawals on earnings, the money must be used for qualified higher-education expenses of the beneficiary at an eligible educational institution. These expenses include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; certain room-and-board expenses during any academic period the beneficiary is enrolled.
What is the difference between New York's 529 College Savings Program and prepaid tuition programs?
College savings programs are structured where an individual makes contributions to an account for the designated beneficiary. Prepaid tuition accounts allow you to pay now at the current tuition level to cover future tuition costs for a designated beneficiary. Neither assets in prepaid tuition programs nor their distributions are reported on the FAFSA.
If the owner of a college savings account is the parent, is the account reported on the FAFSA as an asset of the parent or the student?
A college savings account owned by the parent should be treated in the federal need analysis as an asset of the parent. Based on the fact that the student can be removed as the beneficiary of an account at any time and the account owner can close the account and use the proceeds for another purpose, the assets held in college savings plan accounts owned by a parent are assets of the parent. Thus, in the case of a dependent student where the parent owns the account in the New York 529 Program, the assets in the account are reported in the category of "Investments
" on the FAFSA.
How is the college savings account reported on the FAFSA if the student is both Account Owner and Designated Beneficiary?
Student-owned accounts are reported in the category of "Investments" by the student on the FAFSA.
How is the account reported on the FAFSA if the Account Owner is someone other than the student or parent?
When the account owner is neither the parent nor the student, college savings accounts are not required to be reported on the FAFSA as assets, regardless of who owns the account. However, the earnings portion of a withdrawal which is not
a qualified withdrawal is federally taxable income to the account owner. In all cases, the principal portion of a withdrawal is not federally taxable income.
When the account is owned by someone other than the student or a parent, in the year following a qualified withdrawal, the principal portion of the qualified withdrawal is reported on the FAFSA as "Cash received, or any money paid on your behalf, not reported elsewhere on this form," since this category includes expenditures on the student's behalf by anyone other than the student or the parent.
However, in the case of a withdrawal other than a qualified withdrawal from an account owned by someone other than the parent or student, the entire withdrawal would be reported on the FAFSA as "Cash received, or any money paid on your behalf, not reported elsewhere on this form," to the extent used to make an expenditure on the student's behalf.
How are New York's 529 College Savings Program assets treated for New York State financial aid purposes?
Assets held in New York's 529 College Savings Program are not used in the calculation of TAP eligibility or eligibility for any other New York state-administered financial aid program. Owning an account or having an account established on behalf of a student will not adversely affect the student's eligibility calculation for New York State - administered financial aid.
The disbursement of New York's 529 College Savings program funds are incorporated into HESC's existing Escrow Electronic Funds Transfer Service (EFT) and check disbursement systems.
How will funds from New York's 529 College Savings Program be disbursed?
Colleges which have an EFT agreement with HESC, will receive funds by electronically. Colleges which do not have an EFT agreement with HESC, will receive funds by check. Funds for off-campus expenses, and for students enrolled at foreign colleges will be disbursed directly to account owners.
How will colleges know what semester the funds are for?
For EFT transactions, the EFT file will include the starting and ending dates of the academic period for which the funds are requested. These dates will be expressed in 8 digits (CCYYMMDD). For colleges receiving funds by check, the academic period is identified on the check stub as calendar dates i.e. 09/01/2013-06/30/2014.
What EFT file format(s) will be used for disbursements?
EFT disbursements of New York's 529 College Savings Program funds will be made using CommonLine disbursement files or HESC's proprietary EFT files.
Can colleges return funds to HESC?
Colleges should apply their standard policies and procedures for crediting student accounts and refunding excess funds to students. In the event that you are unable to locate the student, or at the student's direction, you may return funds to HESC. Colleges using EFT should return funds on the standard EFR file. If possible, please complete the "reason for return" field on the EFR file. If you return funds by check, send all returns to: "Cashier, New York State Higher Education Services Corporation, 99 Washington Avenue, Albany, New York, 12255." For full returns, please send the original check. For partial returns, be sure to include the original check number, student Social Security number, and account owner Social Security number, this data is included on the original check stub.
Can funds be used to cover a partial liability incurred by a student who has withdrawn?
Funds can be used to cover partial liability as long as the liability was incurred during the academic period specified on the EFT/check.
Are there any unique reporting requirements for these funds?
There are no unique reporting requirements associated with the receipt of these funds.
Who can answer student or parent questions?
Direct all student/parent questions to 1-877-697-2837. New York's 529 program customer service representatives will be able to answer general questions about New York's 529 College Savings Program as well as any specific questions about withdrawal policies and procedures.
Will HESC verify the existence of college savings program funds so that colleges may defer payment due dates?
Federal law prohibits the Program from releasing account information to any third party. The Program can not verify in advance the existence of an account, account balance, or provide any other information about an account.