The financial aid process can be overwhelming, and it is essential for families to understand their Student Aid Index (SAI).  Colleges formerly referred to the SAI as the EFC calculation. The name change was part of the FAFSA Simplification updates.  The SAI is generated after completing the FAFSA and determines your need-based aid position at each college.  I wanted to explain the SAI calculation so that you have a better understanding of how your financial aid positioning is determined.

Here at PayForED, we understand that saving for college and then paying for college is becoming a significant concern for many families.  That is why PayForED has developed student loan solutions to help families better understand their SAI calculation and get the customized answers they need.

Understand your SAI Calculation

Most people believe the SAI to be a single number, but it is actually the sum of four significant calculations.  Our SAI chart breaks down the Student Aid Index, allowing parents and students to understand the details involved in this calculation and their corresponding positioning. The calculation involves four separate numbers that are summed together: the parents’ income, the parents’ assets, the student’s income, and the student’s assets.  Each of these components has distinct rules and allowances.

A family will receive their Federal SAI by completing the Free Application for Federal Student Aid (FAFSA).  This process only provides one number and does not break out the four separate numbers.  To create an effective college-funding strategy, you need to understand the four quadrants of the SAI calculation. The SAI Chart below shows the four individual numbers used to calculate the SAI number.  Some colleges require additional financial information beyond the FAFSA, so please review your college list and their financial aid form requirements.

SAI Parent Income

The first component of the SAI is the parents’ income, which for most applicants will be the most significant component of their SAI. It is based on the family’s structure, the number of dependents, adjusted gross income, and state of residence.  These terms are similar to your federal tax terms, as the two systems are now linked.

The parent income section of the calculation is progressive.  As the family’s Adjusted Gross Income increases, a higher percentage of the multiplier will be applied to the income contribution amount.  This method will result in the SAI increasing more quickly.

The one exception to the adjusted gross income is in the years you are applying for financial aid; the amount a person contributes to a traditional IRA will be added to the income number since it appears on the 1040.  Other deferred contributions that appear on your W-2, such as 401 (k), 403 (b), and 457 contributions, will not be included as income for the FAFSA.  Using the company retirement contributions will reduce the income section of the FAFSA and have higher annual contribution limits than a traditional IRA.

SAI Parent Assets

For the parents’ asset calculation, non-retirement assets are all included.  Excluded from the computation are small family farms and small family businesses.  This change will take effect in the 2026-27 school year. Your primary residence home equity is also not included as a counted asset.  There is an allowance amount based on the tax-filing status and the age of the oldest parent filing the FAFSA. The asset amount that exceeds the allowance amount will be multiplied by 5.64 percent to arrive at the parent asset calculated amount.

SAI Student Income

For dependent student income, the rules are straightforward.  Since dependent students are included on another person’s tax return, their income allowances are limited by the state in which they reside and the federal income exemption amount. Amounts over the allowances are weighted at 50 percent.

SAI Student Assets

In the SAI student asset calculation, there are no allowances, and assets are weighted at 20 percent. Therefore, many people believe that removing assets from the student’s name is a good idea. People compare the student’s percentage of 20 percent to the parents’ percentage of 5.64 percent and disregard the cost of attendance as part of their decision.  This asset-moving strategy is a standard error.

It is best to be cautious when liquidating student assets.  The first issue is the tax consequence of liquidating assets.  For dependent college students up to the age of twenty-four, if there is a taxable gain from the sale of assets, the “Kiddie Tax” rules will apply.  For the student, the first $1,350 of unearned income is tax-free; the next $1,350 is taxed at the child’s marginal tax rate, and any amount exceeding that is taxed using the parent’s marginal tax rate. Do your research, as this limit changes periodically in accordance with the tax code.  Depending on the amount of gain, a very high tax rate could be charged due to the parents’ income level.

The next issue is ownership of the account or asset.  If the primary social security number on the account belongs to the student, then the asset or account is legally considered their money.  Legally, this money must be spent on the student’s behalf.  A parent would need documentation to properly liquidate a Uniform Gift to Minor Account (UGMA account), which is the type of account issued for most children under eighteen.

FAFSA Simplification Changed the Calculation

FAFSA Simplification was a significant change in the processes and systems used to award federal student aid, starting with the 2024-25 award year.  A detailed description of the changes is provided in our FAFSA Simplification article.

Here are some of the FAFSA Simplification changes that should be reviewed:

• The Multi-child college discount is eliminated
• State Income Tax allowance is eliminated
• Automatic feed from the IRS tax system

These are some of the changes.  As stated above, a student must complete the FAFSA to obtain the SAI number and qualify for federal and state financial aid. The values of family-owned farms and businesses, which were added as assets in 2024-25, are no longer included in the calculations due to the One Big Beautiful Bill Act (OBBB) for 2025-26.

Second SAI Method or Institutional Method

In addition to the FAFSA SAI, some schools have a secondary financial aid process called the institutional methodology.  The most common is the CSS profile, which uses a different calculation and is primarily used by many of the more competitive schools.  Unlike the FAFSA SAI, this SAI number will differ at every school.  Each college can modify the calculation to its specific goal within this method.  This number is often not explained or displayed to you.  This CSS calculation will include items not covered by the Federal SAI or FAFSA. In most cases, this number is higher due to the inclusion of other items.  The college will typically use the higher of the two numbers when designing a student financial aid award.

SAI Summary

Understanding the components of your SAI is crucial for developing effective strategies for financing your college education.  Families and students can understand their college affordability, financial debt, and the benefits of earning a college degree.  We often understate the importance of affordability and focus only on admissions.  Many of these early college financial decisions will significantly impact the students’ and the parents’ financial lives for years to come.  Focusing on the outcome should be a part of the decision-making process.

At PayForED, we help families make easy college comparisons and better financial decisions.  The PayForED student loan solution provides a detailed SAI (Student Aid Index) calculation by college.  We also have a list of trained advisors in college funding and student loan repayment, in case additional help is needed.