You may want your OWN account after college to pay for up to $10,000 qualified education loan principal or interest.
Americans owe $1.863 trillion in federal and private student loan debt as of the first quarter of 2026. Of that total, $1.724 trillion is federal student loan debt, spread across roughly 42.6 million borrowers. The average federal balance is around $40,467–about $43,521 counting private loans–though the median is notably lower at roughly $24,109 across all education debt, because a small number of graduate and professional school borrowers with very high balances pull the average up. The 2023 income-based SAVE repayment plan was wound down following a March 2026 court order; those borrowers are being transitioned to other plans, including the new Repayment Assistance Plan (RAP) created by the One Big Beautiful Bill Act, which opened to borrowers on July 1, 2026.
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Up to $10,000 of 529 funds per beneficiary can be used to pay down qualified student debt. That’s a lifetime limit, not an annual limit, but payments may be of either interest or principal.
When the 529 money is used to pay interest on a student loan, that interest no longer qualifies for the student loan interest income tax deduction.
James and his wife finished grad school in Nevada (no state income tax) with student loans, then moved to start a job in Idaho (5.3% state tax). He may start a 529 account for himself as an owner in Idaho, contribute $10,000, wait a few days, take a distribution of funds, and pay off his loans. He may now also claim a $10,000 deduction on the year’s state tax form (a $530 discount).
No statement or example on this site should be considered a specific recommendation for your personal situation. Investing and tax strategies each carry significant risks. Examples herein may not apply to your situation. Please consult your estate attorney, tax advisor, or financial advisor for personal advice.