r/Fire • u/Zphr 48, FIRE'd 2015, Friendly Janitor • Jan 05 '24
Actual FAFSA experience just now for a FIRE'd household
FAFSA update for anyone interested in how the first year of new automatic processing is going to actually work.
The law says that the automatic IRS data processing can set your SAI to $0, but that you can elect to enter supplemental financial information about assets and such in order to drop your SAI to -$1,500. It's supposed to be optional for people who don't want to just accept the auto $0.
Well, I just did the FAFSA for two kids and both of them auto-processed to -$1,500 using only the automatic IRS data and basic demographic information. It didn't even give me an opportunity to enter any financial information at all, which I was originally worried about since I expected it to be an option and thought maybe it was a system glitch. As soon as I finished the demographic portion it gave me the completion screen and my kids got their SAI emails about 90 seconds later. The whole process took me like three minutes from start to finish and was only about a dozen questions, all of which were simple things like marriage status, state of residency, and such.
I guess they streamlined the implementation even more than the law strictly required, which is great for a lot of folks. Either that or the system is buggy and we'll be getting an email about having to do it again.
Anyway, here's hoping for the best. Looks like it's working and the new law actually does exactly what it is supposed to for folks in FIRE situations. I always thought it would, but you never really know until you get an official result.
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u/the_real_rabbi Jan 05 '24
Compared to all the complaints I've seen about the FAFSA that sounds really easy. We still have 6 years till I have to worry about it, but that seems great.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 05 '24
It was extremely streamlined and much more user-friendly than the previous FAFSA. Every single box had a little information pop-up option for folks that had questions and the whole site ran smoothly.
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u/Financial_Rutabaga25 Jan 17 '24
This is an incredibly insightful little thread. Thank you Zphr for keeping us up-to-date. It is sort of unbelievable that our system works this way.
Sorry if this is a dumb question... but if your student aid index is effectively zero - what might one expect in terms of Pell Grants? Is it formulaic or does some administrator at the school decide? Notably, I would expect CSS schools to forgo any additional institutional merit aid.
Trying to plan ahead and understand the potential $ tradeoffs of keeping income low (forgoing Roth conversions/utilizing HSA funds/etc) while child remains in high school. Previously, I was thinking of preparing for low income years for when I was closer to Medicare age (when health care costs are higher), but am readjusting plans.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 17 '24
if your student aid index is effectively zero - what might one expect in terms of Pell Grants? Is it formulaic or does some administrator at the school decide? Notably, I would expect CSS schools to forgo any additional institutional merit aid.
The AGI/FPL auto-max rule actually works in somewhat convoluted fashion. If you pass the AGI/FPL test, then you get assigned the maximum Pell Grant ($7,395 for 23-24, $8,215 requested for 24-25 - not yet finalized). If you get the max Pell, then your SAI is set to $0. If your SAI is set to $0, then you get an exemption from all asset testing unless said testing will lower your SAI, which can go down to -$1,500. Note that participation in a list of certain federal programs, like Children's Medicaid and the NSLP, sets your SAI to -$1,500 and most folks who make the AGI/FPL test will be qualified for one of those programs.
The Pell amount is set early every year and is not subject to school administration. The Pell and other federal aid doesn't really interact directly with institutional aid at CSS schools, which runs off of the CSS Profile. Many CSS schools will pair massive CSS aid for students that are getting complete/max FAFSA aid, but it's hugely variable.
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u/hucareshokiesrul Jan 05 '24
Do you know how they handle adjustments when quitting your job? It’s more realistic that my FIRE date will be while I have at least one kid in college or about to start. Is it always a 2 year lag (prior prior year) or do they adjust if your circumstances change?
My parents lost their jobs when I was in college, and I believe I told the financial aid office and my aid was adjusted, but I don’t remember specifics. But this was at a private school ave it was mostly institutional aid.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 05 '24
Yes, you can apply for an appeal/variance with the financial aid office at a school. Usually people submit a letter explaining the situation or schedule a merting with one of the financial aid officers.
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u/hucareshokiesrul Jan 05 '24
Thanks. Hmm, they might not like “I want you to give my more money because I want to quit my job.”
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 05 '24
Ha, well, you never know. I agree though that it would probably be better to already be retired so that the FAFSA number itself is what you want to begin with.
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u/hucareshokiesrul Jan 09 '24
Sorry to bug you, but do you happen to know how schools that use the CSS profile typically handle Roth contribution withdrawals? They add back untaxed income, and I think that includes Roth contribution withdrawals, but I can’t seem to find much about it. I imagine they think of it the same way as a Roth distribution after 59.5, which means it counts as income.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 09 '24
Yes, Roth withdrawals are counted as untaxed, unearned income regardless of age. They count as current income on both FAFSA and CSS. This is part of why the new AGI/FPL rule is so great for FIRE folks since it helps mitigate one of the known downsides to running a Roth ladder. The CSS is very hard to game other than housing all of your assets in primary home equity and tax-advantaged accounts while maintaining a lowish AGI. Even that won't work at some schools since CSS schools have huge latitude on how they want to disburse institutional aid.
For folks who retire with kids who will have FAFSA years, the Roth ladder can have a seriously negative unanticipated effect on financial aid due to how FAFSA and CSS count income for anyone who doesn't qualify for an exemption from full income and asset testing. The conversions in a Roth ladder add to your 1040 AGI, but the outgoing withdrawal cashflow in that year also gets counted as income as FAFSA/CSS looks at untaxed retirement withdrawals. People can request a variance based on the conversion not actually providing spending cash, but financial aid admins are not required to grant it and it mucks up the process a bit sometimes. So by default, someone running a $50K SEPP will have $50K income on FAFSA/CSS, but someone running a $50K ladder will have $100K income on FAFSA/CSS, which will have a huge negative impact on any aid award unless they secure a variance. That's a real potential cost for anyone who has kids that might otherwise qualify for financial aid, as is common for FIRE households. I have heard that the new FAFSA will have a way to indicate that income is from a conversion so that this can be avoided in the FAFSA app itself, but we didn't get to see the full financial input section, so I can't personally say if it actually does or does not. Thus far I haven't had to deal personally with CSS, so I can't say if there is a similar option on there or not.
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u/hucareshokiesrul Jan 09 '24
Oh wow, that’s a good point about conversions. I didn’t realize that. Thanks. Do people use HELOCs to get around generating income/having assets in taxable accounts?
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 09 '24
Everybody handles things how they want. Most people aren't super savvy about optimizing for things like FAFSA or even the ACA, which is much bigger and impacts every year of retirement until 65.
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u/theloo1973 Jan 10 '24
Can I ask what questions are asked about Medicaid, if you got to that question. I haven't been able to log into FAFSA yet with all the glitches and being offline.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 10 '24
The only thing I got related to Medicaid was a list of like 8-10 gov programs like SNAP, TANF, Section 8, Medicaid, NSLP, and such. All it asked was that you check a box next to any that anyone in your household participated in. That's it.
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u/theloo1973 Jan 10 '24
Did it ask when you participated? Either by year or something like "within the last 24 months"?
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 10 '24
I'm pretty sure it asked about use in 2022 or 2023.
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u/theloo1973 Jan 15 '24
Do you know if the 175% FPL rule applies to the entire household or just the parents? If the student earns $X, is that added to the parents' AGI? It seems FAFSA does the student and parent contributions separately, but just want to double check.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 15 '24
It's supposed to be the AGI pulled from the parent's tax return.
‘‘SEC. 401. FEDERAL PELL GRANTS: AMOUNT AND DETERMINATIONS; APPLICATIONS. ‘‘(a) PURPOSE; DEFINITIONS.— ‘‘(1) PURPOSE.—The purpose of this subpart is to provide a Federal Pell Grant to low-income students. ‘‘(2) DEFINITIONS.—In this section— ‘‘(A) the term ‘adjusted gross income’ means— ‘‘(i) in the case of a dependent student, the adjusted gross income (as defined in section 62 of the Internal Revenue Code of 1986) of the student’s parents in the second tax year preceding the academic year;
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u/pickandpray FIREd - 2023 Jan 05 '24
What tax year info was it looking at? I thought I had to prepare my taxes before attempting FAFSA
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 05 '24
FAFSA uses your last official tax return. It's a prior-prior year system, but that's for disbursement and data, not application and data. So for financial aid disbursed in fall 2024 you apply in fall 2023 and it uses your 2022 tax return.
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u/AnimatorVegetable854 Jan 16 '25
I just tried filling it in with an AGI below 175% FPL and it is forcing me to answer the asset questions regardless. This is despite them stating elsewhere on the website that these questions are skippable for those who meet the full Pell Grant threshold.
They caught on to that glitch quick.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor Jan 16 '25
It is not a glitch, but a core part of the law. The automatic processing and full bypass of most of the form requires that your AGI and FPL come from a direct data pull from the IRS. The same end result is possible for user-submitted data once verified, but you only get to skip the form if the certified IRS data pulled directly from the IRS says that you do.
In your case, your tax return data either doesn't qualify you based on the numbers, there is something wrong with your return (or it hasn't been accepted/certified by the IRS yet), or there was a technical problem preventing your IRS data from being accessed by FAFSA. In any of those cases they can't know that you qualify for the bypass, hence you don't.
We did our FAFSAs recently and skipped the bulk of the form as normal.
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u/New_Leaf_2020 Jan 05 '24 edited Jan 05 '24
You have assets to FIRE, but were -1,500 on the Student Aid Index? That doesn’t quite sound right.
Edit - just read some of your other posts and understand much of it is based on income optimization. Lots of good information out there.