@jadcom said "While still disallowing the savings that should be associated with funds withdrawn for expenses. And that, specifically, it the problem"
That sounds like you think, in addition to the penalty being waived, the earnings should be tax free?
Whether you're on a football scholarship at Ohio State or a free ride at USMMA or USMA, a 529 distribution is taxable. Everyone is treated the same. If you think that's a problem, your congress member is the person to vent at. I agree there is some penalty there, as the earnings are taxed as ordinary income, rather than as capital gains.
If you're just trying to use 529 fund for expenses like books and computers, you'll have to use the scholarship exception, rather that the service academy exception, so you can enter those specific expenses.
