Unlike students, the parental contribution from assets under the federal formula is only 5.64%, not 20%.
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Financing for the program is shared with the states under a federal formula, with the Feds paying about 60% of the costs on average.
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That is a matching federal formula, with the feds sending more federal money to a state the more the state spends on the program.
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Under the current federal aid formula, money in a 529 savings account owned by a parent counts the same as any other nonretirement parental financial asset.
Those 1996 reforms changed the federal financing for the old, New Deal era, Aid to Families with Dependent Children program (AFDC) from a matching federal funding formula, which paid a state more the more it spent on the program.
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Those block grants replaced the old federal matching funding formula with fixed finite funding that left the states responsible for 100% of increased spending, but gaining 100% from any savings.
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Now under the federal need analysis formula only (not the institutional), 529 and ESA assets owned by students are considered assets of the parent for federal aid purposes, therefore they get more favorable aid treatment than other assets like savings accounts, mutual funds, stocks and bonds.
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Like Medicaid, federal funding for AFDC previously was based on a matching formula, with the federal government giving more to each state the more it spent on the program, effectively paying the states to spend more.
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Under old welfare, federal funding was provided according to a matching funds formula.
Send Federal spending on Medicaid and SCHIP back to the states under the same finite block grant formula.
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