This is going to become more of an issue as higher education becomes increasingly expensive and more parents and even grandparents have to step in to help their children and grandchildren pursue undergraduate and graduate degrees. Fortunately, this will have no effect on parents' eligibility for Medicaid. In fact, paying down such a loan should not be deemed to be a transfer of assets for Medicaid purposes since it would constitute the payment of a legal obligation, not a gift to the child or grandchild. The gift occurred when the loan was taken out and the parent or grandparent assumed the obligation.
For more information on Medicaid's asset transfer rules, click here.