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Paying for college is tough for many students, but fortunately, there are resources available to help defray the cost. Students with disabilities may have additional resources available to them. Being aware of the full range of resources and knowing their potential impact can help maximize their value.
Here are some of the resources and planning tools that can help students with disabilities cover the costs of attending college. These resources may cover more than just tuition (e.g., the tax credits can be applied to books and supplies).
Federal student aid
Not all financial aid resources are specific to students with disabilities, and students with disabilities should take advantage of these generally available programs. An important step in getting help with paying for college is submitting the Free Application for Federal Student Aid (FAFSA). It’s how you get considered for some of the least costly and most flexible types of financial assistance:
- Federal grants. The most common of these are the Pell Grant and the Federal Supplemental Educational Opportunity Grant. These can be worth several thousand dollars each and generally don’t need to be repaid.
- Federal loans. These offer fixed interest rates and numerous benefits, such as total and permanent disability discharge. With enough financial need, you could qualify for a subsidized loan, which means you won’t accrue loan interest while you’re in school.
- Federal work-study. Qualifying for financial aid through the FAFSA can make it easier to get a part-time job in college. Be aware that holding a part-time job might impact your disability benefits, so it would be best to determine whether work-study is beneficial in your particular case.
- State tuition waivers. Some states offer tuition waivers to students with disabilities. For example, Maryland waives community college tuition for students receiving Supplemental Security Income (SSI) or SSDI.
Receiving disability income does not disqualify you from receiving federal student aid.
Special needs trusts
Special needs trusts can help people with disabilities remain eligible for SSI and Medicaid benefits while maintaining a financial safety net. Special needs trust assets don’t count against the means test for eligibility for public assistance government programs that can be so critical to getting health care and paying for essentials when a disability makes it challenging to work.
However, these trust assets can have specific requirements regarding their use, and they do count in federal student aid eligibility calculations. (Related: Special needs trusts: What are they and who needs them?)
“Funded special needs trusts need to be reported on the FAFSA [and] can reduce the beneficiary’s financial aid award,” said Kate Cassidy, JD, who is vice president of advanced markets for Barnum Financial Group, a firm in Shelton, Connecticut.1 “The one exception is if a court has placed restrictions on distributions from the trust, but that’s not going to be the case in most situations.”
Starting with the 2024−25 school year, when the FAFSA changes significantly, there will be another exception. If the student (or anyone in the student’s household) receives Medicaid, the student will not have to report any assets on the FAFSA. (The anticipated release date of the 2024−25 FAFSA is December 31, 2023.)
Gifts
It’s natural for family members to want to support a loved one who is serious about earning a degree. Writing a check to the student or their parents, offering to pay tuition bills, contributing to a 529 plan on the student’s behalf, or putting money in their special needs trust are all acts of generosity and mutuality, but careful planning is required. Additionally, if relatives or others are helping a student with disabilities pay for college, it’s important to be mindful how in-kind support might affect public assistance benefits.
“As long as they pay the school directly, it won’t affect the child’s eligibility for SSI and Medicaid, and it also won’t be treated as a taxable gift,” Cassidy said. “Of course, these gifts are treated as untaxed income on a FAFSA form, so again, you must balance Medicaid and SSI against a potential financial aid award.”
Another FAFSA change for 2024−25 will help here. Gifts to students will no longer be reportable on the FAFSA. (See: College tuition: Big changes for the FAFSA)
529 savings plans
A 529 college savings plan offers a tax-advantaged way to pay for an education. It’s for all types of students but can be used by students with disabilities without impacting Medicaid and SSI eligibility if structured correctly (for example, by choosing a plan that permits a change in beneficiaries).
“Maybe the best way to save for college for a disabled child is a 529 plan where the parent is the owner, but the child is the beneficiary,” Cassidy said. “For financial aid purposes as well as Medicaid and SSI purposes, these [plan assets] count as belonging to the parent, not the child.”
“Once the child is an adult, the parent’s resources are not deemed as ‘available’ for the child’s SSI and Medicaid eligibility, and distributions from the 529 are not treated as income to the child as long as they are used for qualified tuition expenses,” Cassidy continued. (Related: 529 investment strategies: A primer)
Further, unused 529 plan funds may be rolled over to an ABLE account, discussed below, though doing so would no longer protect the assets from Medicare payback and they would be subject to the annual maximum contribution limits.
ABLE accounts
An ABLE account provides a tax-favored way to save for qualified disability expenses, such as medical treatment, assistive support, housing, and education.
“It’s excluded as a resource for SSI and Medicaid purposes as long as certain requirements are met,” Cassidy said.
ABLE accounts, also called 529A accounts, are similar in several ways to 529 savings plans for education:
- Contributions are after tax (not deductible) at the federal level.
- Many states offer a state tax deduction for contributions.
- States administer the plans.
- You can participate in any plan that accepts out-of-state residents.
- State tax deductions and other factors are important considerations in choosing the best plan for your situation.
Unlike 529 college savings plans, where the account owner and beneficiary can be different people, the account owner and beneficiary of an ABLE account must be the same person: the individual with a disability.
Contributions often come in the form of gifts but can also come from other sources, and the annual contribution limit is tied to the annual gift exclusion amount ($17,000 in 2023 and $18,000 in 2024). Beneficiaries who work and are not contributing to an employer’s retirement plan can make additional contributions from employment income (in most states, up to $13,590 in 2023).
Further, the FAFSA does not count ABLE accounts as assets, so they should not reduce federal financial aid eligibility.
Medicaid waivers
Medicaid waiver services, also called Home and Community-Based Services (HCBS), help people with disabilities who receive Medicaid and wish to stay in their communities rather than being institutionalized. Program availability varies by state, and there can be waiting lists to receive funds. The level of disability required to receive HCBS can also vary.
But if this support is available to you, it can sometimes be used to pay for tuition and fees, transportation, peer support, career counseling, and more.
Even if your state doesn’t have a Medicaid waiver program that can be used for tuition, it may provide other services — such as environmental accessibility adaptations, financial management, and non-medical transportation — that could make earning a degree more accessible.
Scholarships
Any student who needs help paying for college is advised to search for scholarships. You may be able to find opportunities for:
- People who are disabled (where type of disability isn’t a qualifying factor) and live anywhere in the United States.
- People who are disabled and reside in a certain state.
- People who are disabled and pursuing a certain field of study (like computer science or financial services).
- People who are disabled and attending a certain school or state school system.
- People who are disabled and have demonstrated “outstanding community involvement” or who have advanced opportunities for people with disabilities.
- People with a specific disability.
In addition to various private scholarships, many universities have their own scholarships for students with disabilities.
Tax credits
The American Opportunity Tax Credit can provide up to $2,500 for tuition, books, supplies, and equipment. Up to 40 percent ($1,000) of the credit is refundable if your credit exceeds your federal income tax liability.
The Lifetime Learning Credit, which is nonrefundable, provides up to $2,000 toward tuition and fees.
Your modified adjusted gross income must fall below certain limits to qualify. These limits are $180,000 for married taxpayers filing jointly and $90,000 for single filers. Other qualifications, described in IRS Publication 8863, also apply to claim either credit. Both credits are broadly available; they’re not just for students with disabilities.
Will it pay off?
Anyone considering college wonders whether the time and expense will be worth it (especially when student debt is involved). Know that resources exist to help qualified applicants with disabilities to get jobs.
For example:
- The federal Workforce Recruitment Program connects disabled students and recent graduates with summer jobs and permanent employment.
- The federal government’s Schedule A special hiring authority can help disabled individuals secure federal government jobs.
- Online networks, such as abilityJOBS, share employment listings from companies that are specifically interested in hiring people with disabilities.
- Various state and county programs as well as nonprofit organizations promote and facilitate the hiring of people with disabilities to competitive, integrated employment.
You’re not in this alone
Funding a college education can be daunting for everyone. Don’t be afraid to ask for help. A financial professional with experience in planning for special needs and educational expenses can help you formulate a cost-effective way to pay for college.
Discover more from MassMutual…
A resource guide for adults with a sudden disability
How to craft a financial strategy for your special needs family
Tips for choosing the best ‘financial fit’ college
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