I've got a bushel of clients whose children got scholarships which have caused the 529 balances to remain in place.
From the START website:
[quote]If the beneficiary does not use all or some of the monies in his/her START account, the funds
may be transferred to an account for another beneficiary who is a family member of the original
beneficiary, or the funds may be refunded. If the monies are refunded, the earnings included in
the refunded amount become taxable by the federal and state governments and may be subject to
a 10% (of earnings) penalty tax imposed by the IRS. Monies withdrawn up to the value of
scholarships will not be subject to the 10% additional tax.[
So, worst case scenario, you withdraw the money and pay the taxes that you would have paid in the first place.
Also, at least in La, 529 balances can be used for graduate school.