If the 529 plan is owned by the student the asset is reported as parental assets when the student files as a dependent. Your 529 plan assets are treated at the better rate of 5.64% while non 529 assets are treated at the 20% rate.
Distributions from the 529 plan to pay for this years college expenses are not part of the base-year income. So the 529 plan money used for the college student is ignored when calculating the parents income.
When you file the FASFA and the parents have a 529 plan account, only 5.64% of that account will be counted against you for your family responsibility, as assets. So it's good to have the 529 plan in the parents name. If you have the 529 plan in the child's name the 529 plan money counts toward the parental assets. Any non-529 plan money is counted at the 20% rate and reduces your financial aid.
It is somewhat confusing. This treatment only applys to the federal financial aid rules; each school can set it's own rules when handing out need based scholarships. You can and will be penalized when 529 accounts are part of a families financial assets. Check out your colleges financial aid rules when it comes to 529 plan treatment on a financial aid application.