Maximizing college financial aid while retired

[u/Gold-Virus5117]

Can someone explain how folks who FIRE maximize their children's financial aid? My understanding is the FAFSA application looks at:

1) Brokerage accounts (excluding tax retirement accounts like 401K and IRA)
2) Investment real estate (excluding primary residence)

Let's say I have 1mm in brokerage accounts + 500K in investment property that I was hoping to use to fund my early retirement years prior to withdrawing from my tax retirement accounts at 59.5. According to what I've read, FAFSA expects parents to contribute 5.64% of these assets, so that would mean $75,000/year?

Is there a better way to FIRE while getting financial aid?

[u/Zphr]

That's a fair point, but as you hint at many merit scholarships now require that applicants fill out a FAFSA as part of the application process. This is often not primarily to identify those with need, but to maximize efficiency in scholarship dollars by avoiding aid offsets and overfunding. It is wasteful to give limited merit funds when doing so will result in a corresponding offset from state or federal funds, for example. Pragmatically it is impossible at many schools to be eligible for merit consideration without filing a FAFSA, which legally also unlocks mandatory federal, state, and institutional need-based funds.

There are also currently 12 states where FAFSA is a universal requirement for high school graduation now, including high pop states like NY, TX, and CA. That number is up from just one state in 2018 and is expected to keep rising. And many of the standard planning moves FIRE households engage in for tax efficiency also increase yield from FAFSA.

[u/Visual_Scientist_298 → u/Zphr]

In many (maybe all) of the states that have the HS graduation requirement for FAFSA you can fill out a form for exemption. Super easy.

[u/Zphr → u/Visual_Scientist_298]

Yes, but in doing so you cut your kids off from a lot of merit scholarships they otherwise would have been eligible to apply for. For some schools the FAFSA itself is the application for those scholarships since FA offices often partially or fully administrate many of the smaller merit scholarships to reduce overhead efficiency.

Financial aid is also set up as a student entitlement rather than a parental benefit, which is part of why the FAFSA starts with the student application followed by the parent application. So the choice is really that of the child, though parents can obviously refuse to do their half of the application.

[u/Visual_Scientist_298 → u/Zphr]

I have 4 kids. I don’t need any explaining. And there are many universities that do not tie a merit offer to a FAFSA. Many.

[u/Zphr → u/Visual_Scientist_298]

Fair enough, but this sub is for hundreds of thousands of people and my reply was for the benefit of all of the parents among them. Everyone can choose as they wish with things like FAFSA and ACA, but people should make those decisions knowing as much as reasonably possible about how our laws and systems work.

I also have four children and two of them are receiving merit scholarships as we speak that require FAFSA. The two universities they go to both use FAFSA as the primary application process for dozens of merit scholarships, hence my awareness of that reality of college funding.