Can 529 money be used on materials used to test out of credits?

[lc1967]

My father kindly set up 529 accounts for each of his grandchildren. My youngest son is going to try to get a bachelor's degree mostly by using dual credit and credit-by-exam. Could he use any of his 529 money for exam fees? Or textbooks if he isn't actually enrolled in a class? I know Straighterline can't accept 529 funds. It's my impression the 529s work something like Health Care Savings Accounts: you can make withdrawals and use the money to pay for college expenses and you probably will never be asked to show proof of what you spent the money on, but you should keep the receipts in case you are audited. Is that correct?

[davewill]

From what I can see, the answer is, "No." The key phrase seems to be "qualified education institution" which none of the alternative credit providers are. You might be able to pay for tests at a qualified school like TECEPs at TESU and UEXCELs at Excelsior, it's hard to say. Also, every article I saw specifically mentioned that books that are not required for a course don't count.

See section 8 of Publication 970 Tax Benefits for Education

A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution.
...
Qualified education expenses. These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. See Halftime student, later.
1. The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution.a. Tuition and fees.b. Books, supplies, and equipment.
...
Eligible educational institution. For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S.Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.Certain educational institutions located outside the United States also participate in the U.S. Department of Education's Federal Student Aid (FSA) programs.

[dfrecore]

My father kindly set up 529 accounts for each of his grandchildren. My youngest son is going to try to get a bachelor's degree mostly by using dual credit and credit-by-exam. Could he use any of his 529 money for exam fees? Or textbooks if he isn't actually enrolled in a class? I know Straighterline can't accept 529 funds. It's my impression the 529s work something like Health Care Savings Accounts: you can make withdrawals and use the money to pay for college expenses and you probably will never be asked to show proof of what you spent the money on, but you should keep the receipts in case you are audited. Is that correct?

I have a HCSA and I have been required to show proof of payment to every single thing we've ever purchased with it. So I wouldn't count on not having to show proof if I were you.

[bsimi]

Since Study.com and Straigherline were approved for Pell grants via the EQUIP program, maybe they now are eligible for 529's?

[ndelco]

Since Study.com and Straigherline were approved for Pell grants via the EQUIP program, maybe they now are eligible for 529's?

How does one apply for the Pell grant in order to use it for Study.com? Would I apply for it through TESU?