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The Free Application for Federal Student Aid (FAFSA) plays a critical role in determining how much financial assistance students can receive for college. The process involves a complex formula that assesses a family's financial situation and calculates how much they are expected to contribute toward education costs. Several key scores, factors, and ratios influence the final financial aid package, including the Student Aid Index (SAI)—formerly known as the Expected Family Contribution (EFC)—household income, family size, and college costs. Understanding how these elements work can help students and families plan for college expenses.

Student Aid Index (SAI) and Expected Family Contribution (EFC)

Starting with the 2024-2025 FAFSA, the Student Aid Index (SAI) replaces the Expected Family Contribution (EFC). Both serve the same purpose: estimating a family’s ability to pay for college. However, the SAI introduces changes that aim to provide a clearer picture of financial need. Unlike the EFC, which could not go below zero, the SAI can be negative, allowing students with greater financial need to qualify for additional aid.

The SAI is calculated using income, assets, and household data provided on the FAFSA. Schools use this number to determine how much need-based aid a student qualifies for by subtracting the SAI from the Cost of Attendance (COA) at a particular school:
Cost of Attendance (COA) – Student Aid Index (SAI) = Financial Need

If a school’s COA is $40,000 and a student’s SAI is $5,000, their financial need is $35,000. Colleges then allocate grants, scholarships, work-study opportunities, and subsidized loans to help meet that need.

Income and Asset Assessment

FAFSA considers both student and parent income and assets when determining financial aid eligibility. These factors have different weightings in the formula:

• Parent income: After accounting for allowances for taxes and basic living expenses, a percentage of the remaining income is considered available for college costs.
• Student income: A portion of a student’s earnings is protected from assessment, but any income above that threshold is assessed at a higher rate than parental income.
• Parent assets: Savings accounts, investments, and other non-retirement assets are considered, but a portion is excluded based on the family's financial situation.
• Student assets: These are assessed at a higher rate than parent assets, meaning students with significant savings may receive less need-based aid.

Retirement accounts, home equity (for primary residences), and certain small business assets are not counted in the FAFSA calculation, which helps protect families from having to liquidate long-term savings to pay for college.

Household Size and Number of College Students

The size of a student’s household and the number of family members attending college affect financial aid calculations. A larger household with multiple dependents lowers the family's expected contribution, increasing aid eligibility.

Previously, FAFSA divided the EFC by the number of college students in the household. However, under the new SAI formula, this adjustment has been removed, meaning families with multiple students in college may see a decrease in aid eligibility. This change could impact middle-income families who previously benefitted from having more than one student enrolled in college at the same time.

Cost of Attendance (COA) and Financial Need Calculation

Each college determines its Cost of Attendance (COA), which includes tuition, fees, housing, food, books, supplies, transportation, and personal expenses. The COA varies by school, and since financial aid is based on need, students applying to higher-cost institutions may qualify for more aid than those attending lower-cost schools.

For example, a student with an SAI of $10,000 would qualify for more aid at a school with a COA of $50,000 than at one with a COA of $20,000. This is why students receive different aid packages depending on where they apply.

Federal Pell Grant Formula

The Pell Grant is a need-based federal grant that does not require repayment. Eligibility is determined primarily by the SAI and COA. Students with the lowest SAI scores receive the maximum award, while those with higher SAI scores may receive a reduced amount or no Pell Grant at all.

For the 2024-2025 FAFSA, Pell Grant eligibility is linked more closely to income and family size, simplifying the qualification process for low-income students.

Federal Loan Eligibility and Ratios

FAFSA also determines eligibility for federal student loans, including Direct Subsidized and Unsubsidized Loans. Subsidized loans are need-based and do not accrue interest while the student is in school, whereas unsubsidized loans are available to all students regardless of financial need but do accrue interest.

Federal loan limits are set based on student dependency status and year in school. First-year dependent students can borrow up to $5,500, while independent students or those in later years may qualify for higher amounts.

Impact of Special Circumstances on FAFSA Calculations

Some students may experience financial changes that are not reflected in the FAFSA, such as a parent losing a job, unexpected medical expenses, or a sudden decrease in income. In such cases, students can request a professional judgment review from their college’s financial aid office. Schools have the authority to adjust FAFSA data based on special circumstances and may increase aid eligibility if necessary.