Reasons to choose Medicaid vs ACA - college tuition benefit

[almost]

I'm not sure if this has been covered before, but thought I'd share for anyone on the fence about Medicaid/ACA with school aged children. 

I have read lots of posts on here about ACA health care plans but not so many about Medicaid.  I understand there are coverage and stigma concerns with Medicaid.  But there are a few excellent benefits that help a family with school age children.

In Michigan if children have been on Medicaid for 2 years and meet a few other requirements, they're eligible for the state tuition incentive program. - basically, 100% tuition coverage for a 4 year program at any public university in the state.  https://www.michigan.gov/mistudentaid/programs/tuition-incentive-program 

It's important to note your kids only need Medicaid coverage for 2 consecutive years.  So if you're not a fan of Medicaid, maybe you could endure it for 2 years to get your kids in the program, and then go back to ACA.  Or as your kids age and your tax household shrinks, you'll probably be moved into ACA anyways.

There are other, smaller benefits like free / reduced school lunch and school sport participation fees. 

I'm not sure if other states have similar offerings, but it's worth checking out for your home state. 

[curious_george]

oh wow - thanks for sharing!

[lhamo]

We are basically in this position with DD.  We have been living off cash savings for several years so our income is low enough that even when declaring significant assets on our FAFSA our EFC was $0.  While the out of state schools that accepted her mostly included significant loans as part of her "aid" package, the in-state schools have met her full need.  She is preparing to accept her offer from the University of Washington this week.  Great school and at basically $0 out of pocket (including room and board -- she is looking forward to living on campus) we can't beat the price!

[seattlecyclone]

In my state we'd need income over $95k for the kids not to be in the Medicaid/CHIP program. We could manufacture that through gain harvesting and Roth conversions if we had to, but so far our experience on the program has been mostly positive.

Side benefits include reduced bus fare and free/cheap admission to various museums. We're probably the only folks in town who will get a discounted museum admission and then turn around and donate a few hundred dollars to the museum from our DAF, but the system is weird sometimes.

[secondcor521]

You can also skip asset reporting on FAFSA under the new rules if a family member has been on Medicaid in the previous two years.  See the FAFSA simplification law section 479(b)(2)(D).

[almost]

In my state we'd need income over $95k for the kids not to be in the Medicaid/CHIP program. We could manufacture that through gain harvesting and Roth conversions if we had to, but so far our experience on the program has been mostly positive.

Side benefits include reduced bus fare and free/cheap admission to various museums. We're probably the only folks in town who will get a discounted museum admission and then turn around and donate a few hundred dollars to the museum from our DAF, but the system is weird sometimes.

Yes, we also get discounted museum admission.  I forgot about that.  Our experience with Medicaid has been positive also.  It was frustrating to find providers at first.  We live in a small town with about dozen doctor and dentist offices and none of them accept Medicaid, so we have to travel to neighboring cities.  It's only a few times a year so not a big deal.

You can also skip asset reporting on FAFSA under the new rules if a family member has been on Medicaid in the previous two years.  See the FAFSA simplification law section 479(b)(2)(D).

Thanks for sharing this.  My kids just got their acceptance letters for the TIP program.  We are not at the FASFA stage yet but I will check it out.

[mustachian816]

You can also skip asset reporting on FAFSA under the new rules if a family member has been on Medicaid in the previous two years.  See the FAFSA simplification law section 479(b)(2)(D).

Wow interesting find, I wonder if they include children on CHIP/medicaid through "Separate CHIP for uninsured children" which some children can qualify for in families making low six figures in some states.

[secondcor521]

You can also skip asset reporting on FAFSA under the new rules if a family member has been on Medicaid in the previous two years.  See the FAFSA simplification law section 479(b)(2)(D).

Wow interesting find, I wonder if they include children on CHIP/medicaid through "Separate CHIP for uninsured children" which some children can qualify for in families making low six figures in some states.

CHIP and Medicaid are two separate programs.  However, they are both federally funded low income programs, so it is possible, even likely, that CHIP also qualifies.

That section of the law (479(b)(2)(D)) is a line item in a list of perhaps a dozen different programs which qualify a family as exempt from asset reporting.  You could look through that list and see if CHIP is listed as well.

[mustachian816]

You can also skip asset reporting on FAFSA under the new rules if a family member has been on Medicaid in the previous two years.  See the FAFSA simplification law section 479(b)(2)(D).

Wow interesting find, I wonder if they include children on CHIP/medicaid through "Separate CHIP for uninsured children" which some children can qualify for in families making low six figures in some states.

CHIP and Medicaid are two separate programs.  However, they are both federally funded low income programs, so it is possible, even likely, that CHIP also qualifies.

That section of the law (479(b)(2)(D)) is a line item in a list of perhaps a dozen different programs which qualify a family as exempt from asset reporting.  You could look through that list and see if CHIP is listed as well.

Thanks for the clarification, a lot of people throw around separate CHIP and medicaid interchangeably since they're often run by the same state agency but behind the scenes they are funded differently.  It appears from I can read, that CHIP isn't included in the federal means testing programs for the FAFSA, only medicaid which has cutoffs closer to the 175% of FPL that everyone already qualifies for.  Though there's a handful of states such as VT and MN that people making around 300% of FPL can qualify.

[jim555]

Having Medicaid qualifies you for other programs, like Lifeline phone, ACP discount on Internet, in my area a lower electric rate saves about $35 a month on the bill. 

Apparently since Medicaid is monthly based keeping your income low for the annual review date qualifies for a year, even if your annual income is over the Medicaid limit for the year.  I just renewed, told the application yearly income will be over, then they asked about monthly income (which is low) and they put me in Medicaid anyway.

[frugalor]

You can also skip asset reporting on FAFSA under the new rules if a family member has been on Medicaid in the previous two years.  See the FAFSA simplification law section 479(b)(2)(D).

I am planning to see how much money I need to put into the 529 accounts for my kids.  We are a low spending family.  So we can get onto medicaid when we FIRE.

Is this article what you are referring to?: https://www.csac.ca.gov/sites/main/files/file-attachments/summary_of_changes_for_the_2024-25_fafasa.pdf

Also, according to these rules:



If income is less than $60K, there will not be asset test either.

With these info.  If I can get onto medicaid two years before my first kid goes to college, I can get financial aid even I have a big investment account, right?  Does this mean I won't need to put money into their 529 accounts if I can plan this out correctly?

[secondcor521]

You can also skip asset reporting on FAFSA under the new rules if a family member has been on Medicaid in the previous two years.  See the FAFSA simplification law section 479(b)(2)(D).

I am planning to see how much money I need to put into the 529 accounts for my kids.  We are a low spending family.  So we can get onto medicaid when we FIRE.

Medicaid is based on income, not spending, so you'd need to be a low income family for at least a few months to get on Medicaid.  But you're right in that being a low spending family makes it easier to be a low income family.  The potential problem, which may or may not affect you, is "forced income", such as if you had a big pension or large investment income.

Is this article what you are referring to?: https://www.csac.ca.gov/sites/main/files/file-attachments/summary_of_changes_for_the_2024-25_fafasa.pdf

I was referring to the actual law, but the document you linked to does seem to be a pretty good summary of the law and contains a reference to the same thing when it says

"- If anyone in applicant’s household received certain means-tested federal benefits in the last two years, there will no longer be an income threshold
– The means-tested federal benefits include SSI, SNAP, TANF, WIC, Medicaid and
Federal Housing Assistance (new)"

Also, according to these rules:



If income is less than $60K, there will not be asset test either.

I think the $60K income requirement also requires you to not file a slew of IRS schedules, including, of interest to you, Schedules B and D.  But if you're on Medicaid (see above), that would be sufficient to avoid the asset test anyway.

With these info.  If I can get onto medicaid two years before my first kid goes to college, I can get financial aid even I have a big investment account, right?  Does this mean I won't need to put money into their 529 accounts if I can plan this out correctly?

Regarding your first question, it's anyone in the family any time in the prior two years (I think - doublecheck that), so getting on Medicaid in the calendar year spanning spring of sophomore / fall of junior year would be sufficient.

And it would exempt you from asset reporting, so a big investment account wouldn't count against you *for FAFSA purposes*.  Some schools use other financial aid methods in addition to FAFSA, and the rules for that are different.

Regarding your last question, if you're really opposed to 529s for some reason, sure, your approach can work.  But even ignoring FAFSA, 529s are quite good for college savings, and even more so if you get a state tax benefit.  With the state tax benefit, you get tax-deferred compounding, tax-free withdrawals, the ability to keep the money out of your estate, the ability to roll the 529 to other relatives, and the ability to roll excess into the kid's Roth IRAs (with certain constraints).

I would probably stay away from 529s only if funding them would require me to realize really high capital gains (like if I had already saved a bunch in taxable), if there were significant doubt if my kids would go to college and I didn't like the modest penalties for non-college withdrawals, if I only had one kid, or if I didn't have any nieces/nephews/grandkids that I wanted to help out.

[frugalor]

I would probably stay away from 529s only if funding them would require me to realize really high capital gains (like if I had already saved a bunch in taxable), if there were significant doubt if my kids would go to college and I didn't like the modest penalties for non-college withdrawals, if I only had one kid, or if I didn't have any nieces/nephews/grandkids that I wanted to help out.

Hi @secondcor521,

Thanks for answering my questions.  I am in California.  There are no 529 tax benefits for contributions.  And in California, medicaid is called medi-cal, not sure if that makes any difference in terms of FAFSA.  The MAGI based medi-cal doesn't have asset test.  If FIRE, I can keep my income below 138% of the poverty line, at about $48K for house of 5, to get onto medi-cal.

My oldest kid will be going to college in year 2029.  So I plan to fill out the FAFSA form on 10/1/2028.  Does that mean I need to get onto medicaid by 10/1/2026?  I want to get the date right to plan for my FIRE date.

The $10K limit on Schedule B, and D will rule out many FIRE folks including me.  So it seems like the medicaid route is more viable.

I am planning for my FIRE date.  I have more than 30x of my annual expenses right now in my investment portfolio.  However, I don't know how much college will cost for my 3 kids.  I was under the impression that I wouldn't be able to get any financial aid because of my assets.  So with the new rule change, if I am able to get onto medicaid, I don't need to report my assets -- that includes the 529 accounts I assume -- if that's true, I can either choose to contribute less to them to not affect my FIRE calculations or not contribute into them at all since at the worse case, my kids can get subsidized loans.

I want to make sure I am thinking straight on this planning.  Thanks!

[secondcor521]

I would probably stay away from 529s only if funding them would require me to realize really high capital gains (like if I had already saved a bunch in taxable), if there were significant doubt if my kids would go to college and I didn't like the modest penalties for non-college withdrawals, if I only had one kid, or if I didn't have any nieces/nephews/grandkids that I wanted to help out.

Hi @secondcor521,

Thanks for answering my questions.  I am in California.  There are no 529 tax benefits for contributions.  And in California, medicaid is called medi-cal, not sure if that makes any difference in terms of FAFSA.  The MAGI based medi-cal doesn't have asset test.  If FIRE, I can keep my income below 138% of the poverty line, at about $48K for house of 5, to get onto medi-cal.

My oldest kid will be going to college in year 2029.  So I plan to fill out the FAFSA form on 10/1/2028.  Does that mean I need to get onto medicaid by 10/1/2026?  I want to get the date right to plan for my FIRE date.

The $10K limit on Schedule B, and D will rule out many FIRE folks including me.  So it seems like the medicaid route is more viable.

I am planning for my FIRE date.  I have more than 30x of my annual expenses right now in my investment portfolio.  However, I don't know how much college will cost for my 3 kids.  I was under the impression that I wouldn't be able to get any financial aid because of my assets.  So with the new rule change, if I am able to get onto medicaid, I don't need to report my assets -- that includes the 529 accounts I assume -- if that's true, I can either choose to contribute less to them to not affect my FIRE calculations or not contribute into them at all since at the worse case, my kids can get subsidized loans.

I want to make sure I am thinking straight on this planning.  Thanks!

Yuck that CA doesn't give any tax benefit.  I know a lot of CA residents are pretty positive about the in state public education system (Cal State X and UC X I guess?).  Maybe that's their reasoning.

I think for FAFSA purposes, Medical would be equivalent to Medicaid.  But you should doublecheck me since it's your kids' college funding that's on the table!

You can fill out the FAFSA for your eldest any time on or after 10/1/2028 - you have that part right.  As far as when, the text of the law reads:

"‘(D) Is an applicant who, at any time during the previous 24-month period, received a benefit under a means tested Federal benefit program (or whose parent or spouse received such a benefit, as applicable)."

-- https://www.congress.gov/116/plaws/publ260/PLAW-116publ260.pdf page 1974

Note that the FAFSA Simplification law has been modified slightly since the original bill above.  I don't think that part has changed, but you should double check that too.

It lists all the "means tested Federal benefit programs" a little later in the above PDF, if you want to check that part out.

As for the last part of what you wrote, yes, if you qualify to be exempt from asset reporting, then you don't have to report any taxable account and also not any 529.

I  also don't know anything about subsidized loans, except I *think* that those are limited in the amount the student can borrow each year to a relatively low amount (like $5000 or so?).  Beyond that is unsubsidized and PLUS loans, which I personally think are a bad deal in general.  But that's up to each family to decide.

[frugalor]

"‘(D) Is an applicant who, at any time during the previous 24-month period, received a benefit under a means tested Federal benefit program (or whose parent or spouse received such a benefit, as applicable)."

-- https://www.congress.gov/116/plaws/publ260/PLAW-116publ260.pdf page 1974

Note that the FAFSA Simplification law has been modified slightly since the original bill above.  I don't think that part has changed, but you should double check that too.

It lists all the "means tested Federal benefit programs" a little later in the above PDF, if you want to check that part out.

As for the last part of what you wrote, yes, if you qualify to be exempt from asset reporting, then you don't have to report any taxable account and also not any 529.

Thanks @secondcor521 for looking into it.  If I understand the English right, it doesn't mean that the student needs to be receiving medicaid for the full 2 years prior to the FAFSA submission.  Instead, If the student were on medicaid for any time during the last 2 years -- for example, if the student receives medicaid  on 9/1/2028, when I fill in the FAFSA on 10/1/2028, asset reporting is not required -- so technically, I can FIRE on, say, 8/1/2028, apply for medicaid, my son will be on medicaid on 9/1/2028.  Then when I fill in the FAFSA, asset reporting won't be required -- I will double check these with more people and more sources of course, but do you think if that makes sense?

Regarding my 529 accounts.  I think I can keep funding them with what I can save just in case.  If I can't spend them all on the kids, they can be passed down to grand kids.

I am losing my interest at my work more and more and want to see when I can safely FIRE.  It seems the only unknown part is education costs for my 3 kids.  And it does seems like the medicaid route will work for us since we are low spenders and will require low income.  Hopefully some CA families in this forum will try this out and report back if this will work next year or later :). Cheers.

[secondcor521]

"‘(D) Is an applicant who, at any time during the previous 24-month period, received a benefit under a means tested Federal benefit program (or whose parent or spouse received such a benefit, as applicable)."

-- https://www.congress.gov/116/plaws/publ260/PLAW-116publ260.pdf page 1974

Note that the FAFSA Simplification law has been modified slightly since the original bill above.  I don't think that part has changed, but you should double check that too.

It lists all the "means tested Federal benefit programs" a little later in the above PDF, if you want to check that part out.

As for the last part of what you wrote, yes, if you qualify to be exempt from asset reporting, then you don't have to report any taxable account and also not any 529.

Thanks @secondcor521 for looking into it.  If I understand the English right, it doesn't mean that the student needs to be receiving medicaid for the full 2 years prior to the FAFSA submission.  Instead, If the student were on medicaid for any time during the last 2 years -- for example, if the student receives medicaid  on 9/1/2028, when I fill in the FAFSA on 10/1/2028, asset reporting is not required -- so technically, I can FIRE on, say, 8/1/2028, apply for medicaid, my son will be on medicaid on 9/1/2028.  Then when I fill in the FAFSA, asset reporting won't be required -- I will double check these with more people and more sources of course, but do you think if that makes sense?

Regarding my 529 accounts.  I think I can keep funding them with what I can save just in case.  If I can't spend them all on the kids, they can be passed down to grand kids.

I am losing my interest at my work more and more and want to see when I can safely FIRE.  It seems the only unknown part is education costs for my 3 kids.  And it does seems like the medicaid route will work for us since we are low spenders and will require low income.  Hopefully some CA families in this forum will try this out and report back if this will work next year or later :). Cheers.

The logic in your first paragraph is sound.  If I were in your shoes, I would either triple check everything or leave some margin in case, for example, it takes longer than a month to get on Medicaid because CA wants some sort of paperwork that takes time to process.

If it helps, I did something similar.  I retired when my oldest was partway through college and my youngest two were still in high school.  I spent little (paid off house and car helps), had a low AGI, and have qualified to skip asset reporting on FAFSA every time.  (*)

I did already have their college adequately funded, but I did make a deal with myself that I would go back to work if necessary to make sure their college was paid for.  Didn't turn out to be an issue in my case, but that was how I addressed the uncertainty, which is quite broad.

As a bit of unsolicited advice, I would encourage you to really soul search if you're sick of work in general for all time, just need a break or a change, or sick of this particular job.

(*) As a side note, I also did several requests for professional judgment to exclude Roth conversions from my taxable income for FAFSA purposes, and those have all been approved as well and resulted in significant improvements to Pell Grants.  Google "Dear Colleague letter GEN-99-10" for details.

[frugalor]

The logic in your first paragraph is sound.  If I were in your shoes, I would either triple check everything or leave some margin in case, for example, it takes longer than a month to get on Medicaid because CA wants some sort of paperwork that takes time to process.

If it helps, I did something similar.  I retired when my oldest was partway through college and my youngest two were still in high school.  I spent little (paid off house and car helps), had a low AGI, and have qualified to skip asset reporting on FAFSA every time.  (*)

I did already have their college adequately funded, but I did make a deal with myself that I would go back to work if necessary to make sure their college was paid for.  Didn't turn out to be an issue in my case, but that was how I addressed the uncertainty, which is quite broad.

As a bit of unsolicited advice, I would encourage you to really soul search if you're sick of work in general for all time, just need a break or a change, or sick of this particular job.

(*) As a side note, I also did several requests for professional judgment to exclude Roth conversions from my taxable income for FAFSA purposes, and those have all been approved as well and resulted in significant improvements to Pell Grants.  Google "Dear Colleague letter GEN-99-10" for details.

Oh you mean the skip asset reporting with medicaid is not a new thing?  I didn't know about FAFSA until yesterday.  I have been thinking how I can possibly FIRE without having 3 fat 529 accounts.  And then I remember this thread and discovered your post.  So this is a proven strategy then.  That's great.  I will do more planning to come up with a safe FIRE date.  I don't plan to do any ROTH conversion, but it's good to know you can ask the Roth conversion to be excluded.

As far as my job is concern, I just feel all the years of stress has shown up in my body one after the other -- first my hearing issue, now my elbow pain.  And with my current spending habits, I think I have enough saved up.  I am currently day dreaming about FIRE.  But again, I want to check very carefully on all the numbers to make sure I have everything covered.

[secondcor521]

The logic in your first paragraph is sound.  If I were in your shoes, I would either triple check everything or leave some margin in case, for example, it takes longer than a month to get on Medicaid because CA wants some sort of paperwork that takes time to process.

If it helps, I did something similar.  I retired when my oldest was partway through college and my youngest two were still in high school.  I spent little (paid off house and car helps), had a low AGI, and have qualified to skip asset reporting on FAFSA every time.  (*)

I did already have their college adequately funded, but I did make a deal with myself that I would go back to work if necessary to make sure their college was paid for.  Didn't turn out to be an issue in my case, but that was how I addressed the uncertainty, which is quite broad.

As a bit of unsolicited advice, I would encourage you to really soul search if you're sick of work in general for all time, just need a break or a change, or sick of this particular job.

(*) As a side note, I also did several requests for professional judgment to exclude Roth conversions from my taxable income for FAFSA purposes, and those have all been approved as well and resulted in significant improvements to Pell Grants.  Google "Dear Colleague letter GEN-99-10" for details.

Oh you mean the skip asset reporting with medicaid is not a new thing?  I didn't know about FAFSA until yesterday.  I have been thinking how I can possibly FIRE without having 3 fat 529 accounts.  And then I remember this thread and discovered your post.  So this is a proven strategy then.  That's great.  I will do more planning to come up with a safe FIRE date.  I don't plan to do any ROTH conversion, but it's good to know you can ask the Roth conversion to be excluded.

As far as my job is concern, I just feel all the years of stress has shown up in my body one after the other -- first my hearing issue, now my elbow pain.  And with my current spending habits, I think I have enough saved up.  I am currently day dreaming about FIRE.  But again, I want to check very carefully on all the numbers to make sure I have everything covered.

Correct.  There are two sets of rules:  current/old FAFSA in effect for 2023/2024, and new "simplified FAFSA" probably going into effect 2024/2025 and after.  But both sets of rules have criteria where you can skip reporting certain assets.  Under the old rules it was called "simplified needs test" or SNT; under the new rules it is called "exempt from asset reporting".  The collections of criteria are different between the old rules and the new rules, but being on Medicaid in the prior 24 months was in both the old rules and the new rules.

As an example, you can see the discussion of simplified EFC (which is another term for SNT) on page 4 of the 2021/2022 formula description at https://fsapartners.ed.gov/sites/default/files/attachments/2020-08/2122EFCFormulaGuide.pdf.  (Note that it mentions free/reduced school lunches; that's one of the programs that qualified under the old rules but not under the new rules.)

You should also know that even if you can knock it out of the park with your FAFSAs and get a zero EFC/SAI via not reporting assets and reporting a low MAGI on your prior-prior year tax return, depending on your kid and the school involved, they may meet your need (difference between their cost and your EFC/SAI) with a big wad of loans instead of grants and scholarships.  Depending on a whole host of factors, those student loans could end up being a pesky minor nuisance to clean up the year after they graduate, or a lifelong financial boat anchor around their neck impacting their stress levels and decisions on which job to take, whom to marry and when, and how many kids to have and when.  Even if you're OK with them having loans, I think it would be good for them to understand the marketability of various degrees, salary expectations, loan payments, etc. before they (or you in the case of parental loans) sign on that dotted line.

[frugalor]

You should also know that even if you can knock it out of the park with your FAFSAs and get a zero EFC/SAI via not reporting assets and reporting a low MAGI on your prior-prior year tax return, depending on your kid and the school involved, they may meet your need (difference between their cost and your EFC/SAI) with a big wad of loans instead of grants and scholarships

Wait. Say if I fill out FAFSA on 10/1/2028.  My son gets medi-cal on 9/1/2028. I FIRE some time earlier in 2028.  I will need to report my 2026 income? or is it 2027 income?  But my 2027 income will be high.  Will that negatively impact the aid my son will receive?

Does it mean I need to FIRE before or early 2027 so that my 2027 tax return will show low income?  So just having medi-cal on 9/1/2028 is not enough?  Or am I overthinking this :)

[secondcor521]

You should also know that even if you can knock it out of the park with your FAFSAs and get a zero EFC/SAI via not reporting assets and reporting a low MAGI on your prior-prior year tax return, depending on your kid and the school involved, they may meet your need (difference between their cost and your EFC/SAI) with a big wad of loans instead of grants and scholarships

Wait. Say if I fill out FAFSA on 10/1/2028.  My son gets medi-cal on 9/1/2028. I FIRE some time earlier in 2028.  I will need to report my 2026 income? or is it 2027 income?  But my 2027 income will be high.  Will that negatively impact the aid my son will receive?

Does it mean I need to FIRE before or early 2027 so that my 2027 tax return will show low income?  So just having medi-cal on 9/1/2028 is not enough?  Or am I overthinking this :)

Glad you're paying attention to the details! ;-)

FAFSA now uses prior-prior year tax returns, so you'll fill out the FAFSA on (or after) 10/1/2028 for the 2029/2030 school year using your (and your offspring's if applicable) 2027 tax returns which you would typically file in spring 2028.

FAFSA spits out an EFC/SAI based on four things (plus a bunch of others):  parent income, parent assets, kid income, and kid assets.  If you qualify for SNT/exempt from asset reporting, then parent assets and kid assets are assumed zero.  But yes, if you have a high parent income on your 2027 tax return, that would increase your EFC/SAI for the 2029/2030 school year.  So no, you're not overthinking it.

...

But again, all this FAFSA maneuvering we're talking about is mostly about Pell Grants.  Beyond those, which are about $8K per year last I looked, FAFSA isn't very relevant (unless your kid is applying for any scholarships which are need based).  An $8K Pell Grant at an in state school could cover half the cost.  $8K at an Ivy League is maybe 10% of the cost.  So school choice matters a great deal too, and is something you can help influence and guide on.

[frugalor]

But again, all this FAFSA maneuvering we're talking about is mostly about Pell Grants.  Beyond those, which are about $8K per year last I looked, FAFSA isn't very relevant (unless your kid is applying for any scholarships which are need based).

Are you sure?  If it's only for $8K a year, maybe the maneuvering is not worth it.  I have no problem saving $8K x 4 years x 3 kids :).

But like you said, it could also be the need based scholarships or private schools (in case they can get in) providing extra financial aid from the FAFSA maneuvering right?

[secondcor521]

But again, all this FAFSA maneuvering we're talking about is mostly about Pell Grants.  Beyond those, which are about $8K per year last I looked, FAFSA isn't very relevant (unless your kid is applying for any scholarships which are need based).

Are you sure?  If it's only for $8K a year, maybe the maneuvering is not worth it.  I have no problem saving $8K x 4 years x 3 kids :).

But like you said, it could also be the need based scholarships or private schools (in case they can get in) providing extra financial aid from the FAFSA maneuvering right?

Fairly sure, having recently had 3 kids in college, including one starting their senior year next month.  You can google "maximum Pell grant" to get the exact figure - I want to say it is $7845 or something for the 2023/2024 school year (it goes up a bit each year I think).

Up to you if the maneuvering is worth it or not.

I don't know what percentage of scholarships and grants are need based.  I do know all three of my kids got merit scholarships and Pell Grants, and the youngest one managed to qualify for a 4 year merit scholarship that was partially needs based - they needed to send their FAFSA to that scholarship each year to get/renew it.

There have been a few other smaller knock-on effects.  My middle son got an SEOG, which is a federal grant program that apparently doesn't exist at all schools.  That was a smaller amount, I don't recall exactly.  And then there were HEERF funds which was a COVID era federal grant program that ended up getting distributed to schools who in turn distributed it to students based on their FAFSAs.

You probably also want to learn about the American Opportunity Tax Credit (AOTC) and look at IRS Form 8863.  That is a tax credit which can be worth $2500 each year for four years per kid.

My strategy was to try to act on all of the various strategies that I could find that applied to my kids.  They ended up getting through (well, overall we're probably through 8 of the 12 years of college for my 3) on merit scholarships, Pell Grants, SEOG, AOTC, 529s, HEERF, and strategic school selection where they picked schools where they would be in the top quartile or so of students.  Helping a school improve their average freshman SAT score or whatever is what some schools will pay for (whether they call it a scholarship, grant, special program, or coupon, it was all the same to me if it got the bills paid).

Oh, and I guess I encouraged them to also do AP exams, IB exams, and focus on the PSAT/NMSQT and SAT so they had good scores there as well.

It takes a lot of reading and understanding and asking a zillion questions to get the framework of understanding about how to combine it all.  But I still managed to FIRE early (age 46) and get my kids into and through the schools they chose debt free.  Actually it looks like there will be 529 money left over, which is going variously to house down payment fund (eldest), unknown but possibly house downpayment or business investment (middle), and Roth IRA rollovers (youngest).

[frugalor]

It takes a lot of reading and understanding and asking a zillion questions to get the framework of understanding about how to combine it all.  But I still managed to FIRE early (age 46) and get my kids into and through the schools they chose debt free.  Actually it looks like there will be 529 money left over, which is going variously to house down payment fund (eldest), unknown but possibly house downpayment or business investment (middle), and Roth IRA rollovers (youngest).

A job well done!  Thank you so much for sharing your knowledge so generously!

[secondcor521]

It takes a lot of reading and understanding and asking a zillion questions to get the framework of understanding about how to combine it all.  But I still managed to FIRE early (age 46) and get my kids into and through the schools they chose debt free.  Actually it looks like there will be 529 money left over, which is going variously to house down payment fund (eldest), unknown but possibly house downpayment or business investment (middle), and Roth IRA rollovers (youngest).

A job well done!  Thank you so much for sharing your knowledge so generously!

Thanks for the kind words.  You're welcome, I hope it helped, and of course good luck to you with your three!

[lhamo]

But again, all this FAFSA maneuvering we're talking about is mostly about Pell Grants.  Beyond those, which are about $8K per year last I looked, FAFSA isn't very relevant (unless your kid is applying for any scholarships which are need based).

Are you sure?  If it's only for $8K a year, maybe the maneuvering is not worth it.  I have no problem saving $8K x 4 years x 3 kids :).

But like you said, it could also be the need based scholarships or private schools (in case they can get in) providing extra financial aid from the FAFSA maneuvering right?

Very much depends on the state, and I'm not sure how CA handles it for residents.

Our daughter was offered basically full ride scholarships/grants to the University of Washington and Western Washington University (the two in-state schools she was interested in) based on our EFC of $0.  That included Pell grant funding, various state scholarship and grant programs (one of which we needed to meet the eligibility criteria for in 8th grade -- do your research!), additional scholarships and grants from the schools, and the remainder made up by a work-study offer ($6k at the UW -- she can work about 10 hours/week which should be managable).  The state of Washington and the city of Seattle have a bunch of programs to encourage "lower income" students to go to college -- DD's boyfriend is bringing his costs down even further by doing 1 years tuition free at the local community college before transferring (hopefully to aerospace engineering at the UW).

Out of state packages all included loans to meet the demonstrated need.  Best offers were through the WUE (western undergraduate exchange) program.  Participating schools will only charge you 150% of in-state tuition if you are coming from another state that participates in the program.  Not all universities participate -- e.g. Oregon State does,  but U of O does not; Colorado State does, but U Colorado - Boulder does not.  DD applied to all four and OSU gave her the best package -- WUE tuition rates + presidential scholarship of 10k + about 3-4k in work study and the rest loans.  OOP cost would have been about $25k all in, which would have been similar to the base rate at UW without her funding package.  Colorado State's offer was comparable.  In the end she decided to stay closer to home with everything funded.  But we had enough in her 529 to fund the other two options if she had chosen those.

WUE info here:

https://www.wiche.edu/tuition-savings/wue/

[secondcor521]

Thanks @secondcor521 for looking into it.  If I understand the English right, it doesn't mean that the student needs to be receiving medicaid for the full 2 years prior to the FAFSA submission.  Instead, If the student were on medicaid for any time during the last 2 years -- for example, if the student receives medicaid  on 9/1/2028, when I fill in the FAFSA on 10/1/2028, asset reporting is not required -- so technically, I can FIRE on, say, 8/1/2028, apply for medicaid, my son will be on medicaid on 9/1/2028.  Then when I fill in the FAFSA, asset reporting won't be required -- I will double check these with more people and more sources of course, but do you think if that makes sense?

Followup comment on this.

I was just looking at a draft 2024/2025 EFC/SAI document, and it seems to imply that the Medicaid (or other need based federal program) must have been during the previous two calendar years (2022 or 2023).  I'm not sure that aligns with the language of the statute, but that's the way they wrote it.

See https://fsapartners.ed.gov/sites/default/files/2022-11/202425DraftStudentAidIndexSAIandPellGrantEligibilityGuide.pdf and search for "exempt from asset reporting".  This document is, as I understand it, a draft to help guide college and high school people involved in financial aid stuff so they know how the new rules work.  It's not the FAFSA itself, but I consider it a good guide.

[frugalor]

Hi @secondcor521,

Just wanted to see if have info on this.  Say the parents are not qualified for Medicaid, but the kids are.  In this situation, is asset reporting still NOT required?

(In CA, parents are qualified for Medi-cal when household income is at 138% of the FPL or below, but kids are qualified at 266% or below)

[secondcor521]

Hi @secondcor521,

Just wanted to see if have info on this.  Say the parents are not qualified for Medicaid, but the kids are.  In this situation, is asset reporting still NOT required?

(In CA, parents are qualified for Medi-cal when household income is at 138% of the FPL or below, but kids are qualified at 266% or below)

If one of the kids on Medicaid is the FAFSA applicant, yes.  See the link in my previous post and search for "exempt from asset reporting".

By the way, there are multiple paths to be exempt from asset reporting.  Another one is if the student qualifies for the maximum Pell Grant, which can occur if the parents' MAGI is under 175% of FPL for the applicable tax year.

[frugalor]

Hi @secondcor521,

Just wanted to see if have info on this.  Say the parents are not qualified for Medicaid, but the kids are.  In this situation, is asset reporting still NOT required?

(In CA, parents are qualified for Medi-cal when household income is at 138% of the FPL or below, but kids are qualified at 266% or below)

If one of the kids on Medicaid is the FAFSA applicant, yes.  See the link in my previous post and search for "exempt from asset reporting".

By the way, there are multiple paths to be exempt from asset reporting.  Another one is if the student qualifies for the maximum Pell Grant, which can occur if the parents' MAGI is under 175% of FPL for the applicable tax year.

Cool.  That's how I understand the words quoted in your previous post.  I think the 266% is the most lax.  I want to plan this out to not let something like unemployment income or some short term side hustle income to bump my kid out of medi-cal.  It's good to know the other ways.  Thanks!

[almost]

Thanks for answering my questions.  I am in California.  There are no 529 tax benefits for contributions.  And in California, medicaid is called medi-cal, not sure if that makes any difference in terms of FAFSA.  The MAGI based medi-cal doesn't have asset test.  If FIRE, I can keep my income below 138% of the poverty line, at about $48K for house of 5, to get onto medi-cal.

My oldest kid will be going to college in year 2029.  So I plan to fill out the FAFSA form on 10/1/2028.  Does that mean I need to get onto medicaid by 10/1/2026?  I want to get the date right to plan for my FIRE date.

Another thing to think about is what income your kids may have at your time of application.  Maybe it doesn't matter for FASFA and your applications, but my 18 year-old's part-time income bumped my family over the FPL threshold and out of the Medicaid program.  It was a big surprise when I got the notice and threw a wrench in some of my plans for the year.  But it was good while it lasted and it's not like I would discourage my kids from working.

[secondcor521]

Thanks for answering my questions.  I am in California.  There are no 529 tax benefits for contributions.  And in California, medicaid is called medi-cal, not sure if that makes any difference in terms of FAFSA.  The MAGI based medi-cal doesn't have asset test.  If FIRE, I can keep my income below 138% of the poverty line, at about $48K for house of 5, to get onto medi-cal.

My oldest kid will be going to college in year 2029.  So I plan to fill out the FAFSA form on 10/1/2028.  Does that mean I need to get onto medicaid by 10/1/2026?  I want to get the date right to plan for my FIRE date.

Another thing to think about is what income your kids may have at your time of application.  Maybe it doesn't matter for FASFA and your applications, but my 18 year-old's part-time income bumped my family over the FPL threshold and out of the Medicaid program.  It was a big surprise when I got the notice and threw a wrench in some of my plans for the year.  But it was good while it lasted and it's not like I would discourage my kids from working.

Student income is considered for the FAFSA.  It's "FAFSA taxed" at a fairly high rate (50%) after a certain amount ($9,410) is exempted.  There are other adjustments too.  Like the parents' income, it's the student's prior prior year income that is considered.

[frugalor]

Hi @secondcor521 or anyone who may know, is it true even with low income at or below 138% of the poverty line, getting medicaid and getting financial aid from FAFSA, a family should have a sizable 529 plan to cover college costs for the kids?

And are the gains in the 529 withdrawals considered MAGI income?

[secondcor521]

Hi @secondcor521 or anyone who may know, is it true even with low income at or below 138% of the poverty line, getting medicaid and getting financial aid from FAFSA, a family should have a sizable 529 plan to cover college costs for the kids?

And are the gains in the 529 withdrawals considered MAGI income?

I don't think it's a true/false thing.  You need to start with what the school is going to cost.  Then figure what won't be covered by FAFSA and other free aid such as scholarships and grants.  Then figure the best way to cover those costs - I used 529s, but some people prefer UTMAs, Roths, taxable accounts, or student loans.

529 withdrawals, if used for qualified educational expenses, would not be included in AGI, and therefore not in any form of MAGI.  The earnings portion of non-qualified 529 withdrawals are included in AGI; see Pub 970 for details on the calculations.