Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / 529 Plans for International Universities and Study Abroad Costs
Transcript
- Lucas: So, Luna, here's a scenario we haven't talked about yet: your kid gets into the University of Oxford — or maybe they want to spend a semester in Florence through a study abroad program. Can you use a 529 for that? Luna: I think a lot of families assume it's a no, because it's a foreign school. But my understanding is it actually can work — with some important caveats. Lucas: Right. The key is that the foreign institution has to be eligible to participate in federal student aid programs — it needs a federal school code from the U.S. Department of Education. If it has that, it's treated essentially like a domestic school for 529 purposes. Luna: So Oxford — I looked this up — it does have a federal code. But not every international university does. Lucas: Exactly. The IRS doesn't publish its own list of eligible foreign institutions for 529 plans. They just say, basically, if the school is eligible for Title IV federal aid — meaning it can accept Pell Grants or federal student loans — then it qualifies for tax-free 529 withdrawals. Luna: And the Department of Education does maintain a database of those schools. So a family would want to search that before they assume they're good. Lucas: Right. Let me give you a concrete number. According to the Department of Education's database, as of early 2026, there are about 440 foreign institutions with active federal school codes. That's up from around 400 just a few years ago. So it's growing, but it's still a limited set. Luna: So if your kid's dream school isn't on that list — say, a smaller university in Japan or a specialized institute in Germany — you cannot use 529 funds for it, period? Lucas: Correct. You would have to pay out of pocket, and any 529 withdrawal would be treated as a non-qualified distribution — meaning you pay income tax plus a 10 percent penalty on the earnings portion. So definitely something to check before you commit. Luna: Okay, but let's say the school is eligible. What expenses can the 529 cover? Tuition, obviously. But room and board? Travel? Lucas: Tuition and fees — yes, same as domestic. Room and board is also covered, but with a twist: for foreign schools, the cost of room and board is limited to the amount that the school's own cost of attendance figures show for the student's specific housing arrangement. The IRS says you use the school's published figure for 'room and board' — but many foreign schools don't publish that the way U.S. schools do. Luna: So you might need to get documentation from the school, a letter or a webpage showing the official housing cost. Lucas: Exactly. Keep that receipt. As for travel — airfare and transportation are not qualified expenses for 529 plans, international or domestic. So that's out of pocket. Luna: That's a big one. A round-trip flight to London from New York can easily run $800 to $1,200. You're not covering that with the 529. Lucas: Right. Now, study abroad programs — this is a really common use case. Say a student at the University of Michigan spends a semester in Florence through a program run by Michigan itself. The tuition paid to Michigan — that's qualified. The program fees paid to Michigan — also qualified. But if the student pays a separate Italian university directly, that might or might not be eligible depending on whether that foreign school has a federal code. Luna: So the structure matters. A lot of parents might just assume 'study abroad' is automatically covered, but it really depends on who gets the check. Lucas: Exactly. And one more nuance: if the study abroad program is run by a third-party provider, like a company that arranges the housing and courses abroad, that provider itself is not an eligible institution. So you have to look at the actual school that's granting the credit — usually the home university — and pay them directly. Luna: Let's talk about currency. If you take a distribution from a 529 in U.S. dollars and then convert it to euros or pounds, any gain or loss from the exchange rate — does the IRS treat that as a taxable event? Lucas: That's a great question. The IRS hasn't issued specific guidance, but the general consensus among tax professionals is that currency exchange itself is not a taxable event for 529 distributions, as long as the funds are used for qualified expenses. However, if the exchange rate moves and you end up with extra dollars after paying expenses, that excess would be treated as a non-qualified distribution. Luna: So you want to be careful not to over-withdraw. Better to take multiple smaller distributions than one big one. Lucas: Exactly. And be aware that some foreign banks charge fees to receive international wire transfers. Those fees are not qualified expenses either — they're just an added cost. Luna: Let me ask about scholarships. If a student gets a merit scholarship from a foreign university, can that affect 529 withdrawals? Lucas: Yes, but in a good way. Under IRS rules, if the student receives a tax-free scholarship, you can withdraw an equal amount from the 529 without paying the 10 percent penalty — you still pay income tax on the earnings portion, but no penalty. This applies to scholarships from any eligible institution, domestic or foreign. Luna: So that's a way to access 529 funds even if the scholarship covers tuition. Lucas: Right. Now, one practical tip: before your student goes abroad, call your 529 plan administrator and ask if they have experience with international disbursements. Some plans can issue checks directly to foreign schools, but many will only send funds to the account owner, meaning you, the parent. You then pay the school on your own. Luna: And keep records in both dollars and the foreign currency, because if you ever get audited, you'll need to show the conversion and that the expense was qualified. Lucas: Let me give you a real cost example. For the 2025-2026 academic year, the University of Oxford estimates total costs for an international undergraduate student at about 45,000 pounds for tuition plus about 16,000 pounds for living costs — that's roughly $76,000 to $80,000 U.S. dollars depending on exchange rates. A 529 plan can cover the tuition and the official room and board figure, but not the flights, not the visa fees, not the health insurance. Luna: So you're looking at maybe $10,000 to $15,000 in uncovered costs per year for a student in the UK. That's significant. Lucas: It is. And families need to plan for that. Now, one more thing: what about graduate school abroad? Same rules apply — if the foreign graduate school has a federal code, you can use 529 funds for tuition, fees, and room and board. Luna: That's good to know, because a lot of students consider doing a master's in Europe where tuition is lower — but living costs can be high. Lucas: Exactly. And the 529 can help with those living costs, as long as they're within the school's cost of attendance. Luna: You know, talking about all these detailed rules reminds me of something. A lot of what we cover on this show — the nitty-gritty of how to make a 529 work for real-world situations — it comes from our own research and experience. Lucas: Right. And this show stays ad-free specifically because listeners who find this helpful occasionally choose to support it. If you've gotten value from episodes like this one — especially the more technical angles that are hard to find elsewhere — you can help keep it going at buy me a coffee dot com slash fexingo. Luna: Even a small contribution makes a difference. It lets us keep digging into these questions that don't always have easy answers. Lucas: Exactly. And on that note — one question we haven't hit yet: what happens if your child decides to stay and work abroad after graduation? That 529 account with leftover funds — you can still change the beneficiary to a sibling, or roll it over to a Roth IRA under the SECURE 2.0 rules, even if the original beneficiary is living overseas. Luna: That's a great point. The Roth rollover doesn't depend on where the beneficiary lives — it's about the account being open for 15 years and the beneficiary having earned income. Lucas: Right. So the 529 remains flexible even if your child's path goes global. The key takeaway here is: if you're considering international education, check the federal school code first, understand what expenses are actually covered, and plan for the gaps. The 529 is a powerful tool, but only if you use it within the rules. Luna: And the rules are actually more accommodating than most people think — just with a few landmines to avoid. Lucas: Exactly. So that's the international angle on 529 plans. Next time, we might look at how these rules interact with foreign tax treaties — because that's another layer some families will want to know about.