The citizen child can file the FAFSA, and is eligible for federal financial aid. There is no problem about that.
California universities do have special rules that allow students with one parent who lives in California to qualify for in-state tuition and fees even if the child has been living elsewhere. However I don’t know what visa statuses allow a non-citizen, non-green card parent’s residency in California to qualify their citizen children as in-state residents. The non-citizen parent needs to ask about this at UCSD.