Updated October 2026
Paying for education looks different this year. Federal law now lets 529 plans cover more than college tuition, and new caps on federal loans for parents and graduate students took effect on July 1, 2026. Families who built a plan around the old rules may need to adjust it.
The core of a good education plan hasn't changed. Know what you're paying for and when, save in the right account, lower the price before you borrow, and keep your own retirement on track. Below we walk through each step with the 2026 rules built in, for parents saving for a child and for adults thinking about going back to school.
What Changed in 2026
- Bigger K-12 limit for 529 plans. Starting in 2026, you can withdraw up to $20,000 a year for K-12 costs, up from $10,000. Allowed expenses now include tutoring, textbooks and testing fees, according to Chase. Some states don't treat K-12 withdrawals as qualified for state tax purposes.
- 529 money for credentials and licenses. Since July 2025, 529 funds can pay for recognized certificate and licensing programs, such as CDL training or HVAC certification, along with related exam fees and continuing education.
- New caps on Parent PLUS loans. For new borrowers starting July 1, 2026, parents can borrow up to $20,000 a year and $65,000 total per student, according to MEFA.
- Grad PLUS loans are gone for new borrowers. Graduate students now face a $100,000 lifetime cap on federal loans, or $200,000 for professional degrees such as law or medicine.
- A new repayment plan. The Repayment Assistance Plan sets payments at 1% to 10% of adjusted gross income and replaces the income-driven plans for new loans.
What College Costs Now
According to the College Board, average published tuition and fees for 2025-26 are $11,950 at public four-year schools for in-state students, $31,880 for out-of-state students and $45,000 at private nonprofit four-year schools. Public two-year colleges average $4,150. Room, board, books and transportation come on top of those figures.
Those are sticker prices, and few families pay them in full. After grants and scholarships, the College Board estimates that average net tuition at public four-year schools has fallen to about $2,300 in today's dollars, down from a peak of $4,450 in 2012-13. The gap between the posted price and what you actually pay is often larger than people expect, which is why the net price matters more than the headline number.
1. Define What You Are Paying For, and When
Start by naming the goal. A four-year degree for a toddler, a graduate program for yourself in three years and a professional certificate for a career change each call for a different amount and a different timeline. Write down the credential, the expected start date and a rough cost.
Then ask whether the program is likely to pay off. Look at what graduates of that program earn and how long it would take to repay any borrowing. For adults, also count the income you might give up while in school. A clear target turns a vague hope into a number you can save toward.
2. Save in the Right Account
For most families, a 529 plan is the starting point. Contributions grow tax-free, and withdrawals for qualified education expenses are tax-free at the federal level. The 2025 and 2026 changes make the account more flexible, since it can now pay for credential programs and a wider set of K-12 costs.
Minnesota adds a state benefit. Taxpayers can subtract up to $1,500 of 529 contributions from state income, or $3,000 for married couples filing jointly, and this works for any state's 529 plan. Households below certain income levels can instead claim a credit of up to $500, according to the Minnesota House Research Department. You can take one or the other, not both.
If your child gets a scholarship or skips college, the money isn't stuck. You can change the beneficiary to another family member, or, under SECURE 2.0, roll up to $35,000 over the beneficiary's lifetime into a Roth IRA in their name. The 529 must have been open at least 15 years, and annual Roth contribution limits still apply.
3. Lower the Price Before You Borrow
File the FAFSA every year, even if you don't expect need-based aid. Many colleges use it to award their own grants and merit scholarships. Use each school's net price calculator to compare what you'd actually pay, since a private college with generous aid can cost less than a public one.
Consider other routes as well. Starting at a community college and transferring can cut the cost of a bachelor's degree sharply. For adults, an employer may cover part of the bill. Employers can pay up to $5,250 a year toward tuition or student loans tax-free, a benefit the One Big Beautiful Bill Act made permanent, so ask your HR team before you enroll.
4. Borrow Within the New Limits
Borrowing can be a reasonable part of an education plan when the amount fits the likely payoff. A common rule of thumb is to keep total student debt below the expected first-year salary. The new federal caps make this planning more important, because families can no longer fill every gap with Parent PLUS or Grad PLUS loans.
If the federal limits fall short, compare options carefully before turning to private loans, which generally lack income-based repayment and forgiveness. Avoid paying for school by withdrawing from retirement accounts. You can borrow for education, but no one lends you money for retirement, and dollars taken out now lose decades of growth.
Families who borrowed before July 1, 2026 may keep the old limits for a time if the student stays in the same program. If you are mid-degree, check your status with the school's financial aid office before making changes.
5. Fit Education Into the Rest of Your Financial Plan
Education funding competes with your other goals, and it shouldn't win by default. For parents in their 40s and 50s, the years of peak college costs often line up with the last, most important years of retirement saving. Keep contributing enough to your workplace plan to capture any employer match, then direct extra savings toward education.
If you're 45 or older and thinking about going back to school, look at the plan from both directions. A new credential may raise your income and extend your working years. It may also mean lost earnings and tuition costs just as your retirement window narrows. Run both scenarios before you commit.
Major life changes affect education plans too. In a divorce, who pays for college and who controls the 529 account should be settled in the agreement, not left for later. For business owners, education costs for a child who may join the company can tie into succession planning. We cover how these pieces fit together in The Benefits of a Holistic Financial Planner.
Questions Families Ask About Paying for Education
Can a 529 plan pay for trade school or a certificate program?
Yes, if the program qualifies. Since July 2025, 529 funds can pay for recognized postsecondary credential and licensing programs, including related exam fees. Programs generally need to be recognized under federal workforce or veterans' education rules, so confirm eligibility with your plan before withdrawing.
What happens to 529 money my child does not use?
You have options. You can change the beneficiary to a sibling, a cousin or yourself. You can roll up to $35,000 over the beneficiary's lifetime into their Roth IRA if the account has been open at least 15 years. You can also withdraw the money for other uses, but earnings would be taxed as income and generally face a 10% penalty.
How much can parents borrow for college now?
For families taking out their first Parent PLUS loan on or after July 1, 2026, the limit is $20,000 a year and $65,000 in total for each student. Families who already had loans in place before that date may keep the older rules for a limited time.
Should I save for college or for retirement first?
In most cases, retirement comes first. Students have access to grants, scholarships and loans, while retirees have no similar options. Once you're capturing any employer match and your retirement savings are on track, extra dollars can go to a 529.
This article is for general information only and is not individualized financial, tax or legal advice. Rules for 529 plans, financial aid and student loans can change. Confirm details with your plan administrator, school or tax professional.
Related Reading
- Strategic Planning to Finance Higher Education
- Achieve Financial Wellness: The Benefits of a Holistic Financial Planner
- Financial Planning Fundamentals: Five Areas Every Individual and Family Should Review
Whether you're saving for a child or planning your own next step, we can help you set a target and fit it alongside the rest of your goals. Contact MJT & Associates to schedule a consultation.
