One of the reasons for FIRE is a desire to have total control over your finances. But, when it comes to paying for college, your hands become tied by colleges deciding how much money you are “able to spend.” We have saved a lot of money to live the rest of our lives comfortably, but that did not include a significant portion for our kids’ college. I am not willing to pay for our two kids to go to a top-10 private year school for an average of $75,000/year or $600,000 total.
The Free Application for Federal Student Aid or FAFSA is the standard for determining how much aid your child should receive for college. However, many top-performing private schools and a few public schools use CSS to determine eligibility.
Generally, a family with significant assets outside of retirement accounts, like someone who has retired early, will be punished in these calculations, even if your yearly income is low. CSS will always look at the parent’s assets. Even though they will weigh less than student assets, you will be expected to pay a significant portion of your child’s tuition.
However, the 2024-2025 school year changes how financial aid is calculated for FAFSA. Expected Family Contribution (EFC) is being replaced by the Student Aid Index (SAI). The other significant change is the removal of the “Simplified Needs Test” in favor of the following:
A dependent student applicant is exempt from asset reporting if they meet one of the following criteria.
- The applicant qualifies for a Maximum Pell Grant
- The applicant’s parents’ 2022 combined AGI is less than $60,000 and they do not file a Schedule
A, B, D, E, F, or H, AND
a. They do not file a Schedule C, OR
b. They file a Schedule C with net business income of not more than a $10,000 loss or gain. - The applicant or applicant’s parent received a benefit under a means-tested Federal benefit
program during the 2022 or 2023 calendar year.
This provides an enormous possibility for FIRE families who can keep their income down.
Exclusion 1: The applicant qualifies for a Maximum Pell Grant
If you do not have a college degree and show “exceptional financial need,” you may be eligible for a Pell Grant. The Maximum Pell Grant for 2023-2024 is $7,395. This amount changes every year, and your eligibility is checked every year.
If your parents’ AGI is 175% of the poverty guideline (for the previous year) for the applicant’s family size and state of residence, you qualify for the maximum amount.
| 2023 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA | |
|---|---|
| Persons in family/household | Poverty guideline |
| 1 | $14,580 |
| 2 | $19,720 |
| 3 | $24,860 |
| 4 | $30,000 |
| 5 | $35,140 |
| 6 | $40,280 |
| 7 | $45,420 |
| 8 | $50,560 |
| For families/households with more than 8 persons, add $5,140 for each additional person. | |
For a family of four in 2023 in the contiguous 48 states, this equals $52,500 ($30,000*175%).
If your AGI is over your calculated number, the math becomes more complicated as you need to complete the formulas found here to find your SAI. Any savings, non-primary residences, and non-retirement investments are counted against you.
You may be okay if all of your FIRE investments are in retirement accounts excluded from the FAFSA calculations. Unfortunately, that is not the case for me. Since I retired so early, most of our money is outside retirement accounts, so we need liquid assets.
To be excluded from asset reporting and have an SAI of 0, we must keep our AGI under $52,500.
Since this is AGI, you do get an additional exclusion from retirement post-tax retirement contributions ($13,000+), capital gains losses($3,000), HSA contributions ($7,750), and half self-employment tax. This means your gross income could be $75,000+, and you may still qualify.
#2 The applicant’s parents’ 2022 combined AGI < $60,000 …
There is still hope if you have between $52,500 and $60,000 AGI… okay not really. If you file a schedule A, B, C*, D, E, F, or H, you do not qualify for the second option.
You are excluded if you made more than $1,500 in interest (Schedule B).
You are excluded if you make over $10,000 from self-employment (Schedule C).
If you sold stock, you are excluded (Schedule D)
If you have rental properties, you are excluded (Schedule E)
Taking the standard deduction means you don’t file a Schedule A. Farming Income is Schedule F. Household worker is Schedule H.
Good luck!
#3 Means-tested Federal benefit
This final option is similar to previous years’ Simple Needs Test. However, that test did not guarantee assets would be excluded as some states or schools still required asset and income data.
The applicant or applicant’s parent received a benefit under a means-tested Federal benefit
program during the 2022 or 2023 calendar year.
If your child qualified for any of these services, like Medicaid, in the previous two years, then your assets will not be included in FAFSA calculations.
In Illinois, if your income is below 318% ($95,400 for a family of four) of the poverty line and your child is 18 or under, they qualify for Medicaid. In Illinois, this MAGI calculation includes contributions to 401K/IRA. You could easily make over $100K and qualify for Medicaid.
Conclusion
If you have a middle school or young high school student, start tracking your income levels now. FAFSA looks at your tax filings from two years before you apply for aid. If your child is going to start college in 2026, then next year (2024) will be used in all calculations.
Keep your income low, and your child can receive enormous financial aid!
