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The bill makes college applications more affordable and tax-efficient for families by allowing 529 plan funds to cover application fees, at the expense of modest federal revenue loss and a small risk of increased application volume without corresponding educational benefit.
Students and families can pay college application fees from 529 plans tax-free, lowering out-of-pocket costs and easing cash flow during the college application process.
Families using 529 plans will face fewer taxable withdrawals and potential penalties because application fees are treated as qualified expenses, simplifying tax treatment of admissions-related spending.
Federal taxpayers could see modestly reduced federal tax revenue if more 529 withdrawals become tax-free, increasing the bill's budgetary cost.
Students and families may be slightly incentivized to submit more college applications (since fees can be paid with 529 funds), which could raise applicants' out-of-pocket costs and administrative burdens without improving admission outcomes.
Based on analysis of 2 sections of legislative text.
Allows 529 plan distributions to cover fees a student is required to pay to apply for admission to eligible educational institutions, treating them as qualified higher education expenses.
Makes college application fees a qualified expense under Section 529 plans so money withdrawn to pay required application fees is tax-free and not subject to the usual penalty. The change amends the federal tax code to explicitly allow distributions from 529 plans to cover fees charged to a student to apply for admission to an eligible educational institution. This change applies to distributions made after the law is enacted. It mainly helps students and families who use 529 plans by letting them use saved funds for application costs without tax or penalty, and it will require 529 plan managers and the IRS to update guidance and recordkeeping.
Introduced January 22, 2026 by Janelle S. Bynum · Last progress January 22, 2026