How to Use 529 Money to Cover the Cost of Studying Abroad

A college student using a 529 plan to study abroad

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Studying abroad in college can be an eye-opening experience, but there's just one potential obstacle: the price tag.

On average, the cost of studying abroad hovers around $14,000 per semester or $28,000 per academic year. While student loans, study abroad scholarships, and grants may cover some of that, there is another option. If you've contributed money to a 529 account for college expenses, that savings can be used to pay study abroad expenses.

Using a 529 Plan to Pay the Cost of Studying Abroad

529 plans are designed to offer a tax-advantaged way to save for qualified higher education expenses at eligible colleges and universities. The types of expenses typically covered include:

  • Tuition and fees
  • Room and board
  • Textbooks
  • Computer software and equipment

The same rules that apply when using 529 funds to pay for college in the U.S. carry over when using the money to cover the cost of studying abroad. Simply, for a 529 plan withdrawal to be considered qualified and thus, tax-free, the money must be used to pay qualified study abroad expenses at a college or university that's eligible to participate in federal student aid programs.

The U.S. Department of Education maintains a list of international schools (including medical schools) that participate in federal student aid programs. If your student plans to use student loans to pay some of the cost of studying abroad, they'll just need to fill out the Free Application for Federal Student Aid (FAFSA) as usual.

So what expenses can be covered? The same list of things that would be covered at your student's home school mentioned earlier. The more important consideration is what you cannot use 529 account money for when paying the cost of studying abroad. That list includes:

  • Travel to and from the host country or school
  • Sports and activity fees
  • International health insurance or health care costs incurred overseas
  • An international cell phone
  • Basic living expenses

One other thing to note: students must be enrolled at least half-time for a 529 plan withdrawal to count as a tax-free distribution. If your student drops a course and that puts them below half-time, that could trigger a tax penalty.

Should You Use 529 Plan Money to Pay the Cost of Studying Abroad?

This is an important question and finding the answer starts with analyzing the cost of studying abroad. The cost largely hinges on three things:

  • The location of the host school
  • The length of your student's stay
  • Who's sponsoring the program

If your student is enrolling in a study abroad program through their home university, they'll effectively pay the same for tuition, fees, and room and board at their host school as they would at home. If they're enrolling through the host school, however, the school determines the cost of attendance. Study abroad programs can also be sponsored by third-party companies, which charge their own fees.

When there's a choice between studying abroad through the home school, paying the host school's rates, or going the third-party route, it's important to do a cost comparison. If your student's home school comes with a significant tuition bill, for example, and the host school is offering a much lower rate, it might make sense to reserve 529 plan money for expenses at their home school and pay for study abroad another way.

There's something else to consider if your student's going through a third-party provider. You'll have to be sure the host school is qualified to participate in federal student aid programs under Title IV. If it's not, you may not be able to use 529 plans as a tax-free withdrawal since third-party study abroad providers themselves don't have a federal school code. If you're paying for a third-party program with 529 money, be sure to keep detailed records of the expenses you pay in case the IRS challenges your withdrawal as being non-qualified.

How to Save on the Cost of Studying Abroad

Before your student sets off, take time to create a budget and do the math to see if there are any opportunities to save on study abroad expenses.

For example, room and board on-campus may be an option but how does that compare to the cost of living off-campus? In some cities, and depending on the school, it may actually be less expensive to put your student up temporarily in a private apartment.

Travel costs are another consideration. As soon as you know your student plans to study abroad, start researching flights to their host destination. Booking early could help you snag a deal on an inexpensive flight.

If you have a travel rewards credit card, check your rewards balance to see if you have miles or points accumulated that you could use to cover the cost of their flight. One strategy that may be worth looking into if you don't have a travel rewards card is opening one well in advance of the travel date, then charging things to the card to earn an introductory points or miles bonus. You could then apply those rewards to their airfare. Just remember to pay the balance in full, otherwise, interest charges could nibble away at your savings.

A rewards credit card can also yield savings while your student's away if they're using it to earn cashback on purchases made overseas. You can add them as an authorized user to your card, allowing them to pay for food, entertainment, or other expenses. But, lay the ground rules first about how much they're allowed to spend. And most importantly, look for a card with no foreign transaction fee, which could make the cost of what they buy on credit more expensive.

Article Sources

  1. GoAbroad. "The Average Cost of Study Abroad Programs Around the World - A Study." Accessed Sept. 8, 2021.

  2. Internal Revenue Service. "Topic No. 313 Qualified Tuition Programs (QTPs)." Accessed Sept. 8, 2021.

  3. Internal Revenue Service. "Tax Benefits for Education," Page 11. Accessed Sept. 8, 2021.