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Applying for student financial aid? Introducing the Student Aid Index (SAI) and other FAFSA changes

Why is FAFSA simplification so confusing?
Written byMiranda Marquit
Miranda Marquit
Miranda is an award-winning freelancer who has covered various financial markets and topics since 2006. In addition to writing about personal finance, investing, college planning, student loans, insurance, and other money-related topics, Miranda is an avid podcaster and co-hosts the Money Talks News podcast.
Fact-checked byNancy Ashburn
Nancy Ashburn
As a 30+ year member of the AICPA, Nancy has experienced all facets of finance, including tax, auditing, payroll, plan benefits, and small business accounting. Her résumé includes years at KPMG International and McDonald’s Corporation. She now runs her own accounting business, serving several small clients in industries ranging from law and education to the arts.
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How much financial aid will the government give?
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The Free Application for Federal Student Aid (FAFSA) has been part of the education landscape for decades. But starting with the 2024 application (available as of January 2024 on the Federal Student Aid website), the FAFSA is getting a major overhaul. One of the mainstays of the old FAFSA—the expected family contribution (EFC)—is being replaced by the Student Aid Index (SAI).

If you’ve previously filled out the FAFSA and you’re used to the EFC calculation—or if you’re new to the FAFSA process—you should familiarize yourself and your family with the new Student Aid Index, so you better understand the kind of financial aid help you may expect from the federal government.

Key Points

  • Expected family contribution (EFC) is being replaced by the Student Aid Index (SAI), resulting in updates to how federal student aid is figured.
  • With the SAI, the lower the amount displayed, the higher the need for financial aid.
  • The FAFSA will be simplified from 108 questions to about 36 as part of the same legislation.

What is the FAFSA Simplification Act?

The FAFSA Simplification Act, which was included in the Consolidated Appropriations Act of 2021, made changes to the FAFSA, particularly how federal student financial aid is determined. In addition to the new SAI, major updates to the process of applying for federal aid include:

  • Fewer questions. The number of questions on the new FAFSA is reduced to 36 from a cumbersome 108.
  • Reclassifying some income as assets vs. cash flow for families. Students are expected to use a small percentage of their assets for their education each year. But cash flow items typically reduce your aid dollar for dollar.
  • Updates to the Pell Grant formula. Under the new guidelines, more families will qualify for a Pell Grant based on income.
  • Simpler upload process. It will be easier to incorporate adjusted gross income and other data from your tax return into the FAFSA.
  • Two barriers to financial aid removed. Before the 2024–25 changes, the FAFSA required the disclosure of certain drug-related convictions that would preclude eligibility to receive financial aid. Now, no such disclosure is required, nor would such an offense affect aid eligibility. Also gone is a requirement that male applicants be registered with the Selective Service (“the draft”).

Student Aid Index (SAI) vs. expected family contribution (EFC)

For many families, this is the biggie: The EFC is now the SAI. At first, this might seem a bit confusing, but the name change is meant to clarify matters.

One of the issues has to do with the name itself: “expected family contribution” seemed to imply that the EFC number would be the limit to how much a family would be required to spend on a child’s education. Parents and students were then surprised to realize that the actual cost of school was much more.

The switch from EFC to SAI should help. However, it’s important to note that the cost of attending college might still far exceed the amount of federal student aid received.

Subsidized vs. unsubsidized Federal loans

Confused by the lingo? Not sure why subsidized loans are better? (Spoiler alert: It’s about interest accrual.) Britannica Money breaks it down.

Like the old EFC, the new SAI is designed as a guideline only. It’s meant to provide an indication of whether a student is eligible for various types of financial aid, including Pell Grants, Federal Work-Study, and direct loans. Although any student who fills out the FAFSA can get unsubsidized direct loans, the SAI will help determine eligibility for subsidized direct loans for undergraduates.

How to calculate SAI

The Student Aid Index is calculated using the information you provide on your FAFSA. You’ll find questions about your family size, how much you and your parents make, and any assets you and your parents have.

Some of the changes to the formula used to calculate SAI include:

  • Higher income protection allowance (IPA). The IPA is the amount of your family’s income that’s not counted in the calculation of what the family should reasonably be expected to pay. The more that’s protected (exempted from the calculation), the better. Students who are single parents will see the biggest increase in income protection (close to 60%), while most students will see an increase of around 35%. Parents will see about 20% more of their income protected.
  • Expanded Pell Grant eligibility. This increases the eligibility for the maximum Pell Grant amount to 175% above the federal poverty line for non-single parents and 225% of the poverty line for single parents. Depending on your family type, eligibility for the smallest Pell Grant amount is set between 275% and 400% of the poverty line. The federal poverty line is calculated using a formula that includes income and family size, but for the 2022 tax year (on which the 2024–25 FAFSA is based), the poverty guideline for a family of four in one of the 48 contiguous states and the District of Columbia is $27,750. (The poverty guideline varies for the states of Hawaii and Alaska.)
    For example, if your mother is a single parent in the state of Illinois with three children (thus, a family of four), you’d qualify for the maximum Pell Grant if your mom’s adjusted gross income (AGI) is $27,750 x 225% = $62,438, and for the minimum Pell Grant with an adjusted gross income (AGI) of $27,750 x 325% = $90,188.
  • The number of children in college will no longer impact the formula. Previously, if your family had two or more children in college at the same time, you could spread your EFC among them, meaning you’d be more likely to qualify for aid—and perhaps receive a higher aid allotment. That benefit no longer exists (although it’s possible to appeal based on the number of children a family has in college).
  • Exemptions for certain types of untaxed income. Items such as cash support and expenses paid on the student’s behalf, education benefits for veterans, and worker’s compensation will no longer be included in the FAFSA to be used for the SAI calculation.
  • Child support is now considered an asset. Because (in general) assets enjoy a higher level of exemption than income, this reclassification is a perk for those receiving child support.
  • Expanded 529 plan exemption. Distributions from a 529 plan owned by a grandparent or other non-parent relative on behalf of the beneficiary will no longer be included in the calculation to affect the amount of aid a student receives.

Another big change is that, rather than dropping to $0, as the EFC used to do in certain circumstances, the SAI will allow for -$1,500 as the lowest possible amount. Basically, the SAI calculation indicates the greatest need—and eligibility—for federal student aid. The lower the number on your Student Aid Index, the more likely you are to receive help from the federal government.

However, it’s important to note that having a low SAI only means you qualify for the maximum amount of federal student aid. It doesn’t mean you won’t have to pay at all for college. You might still owe money, depending on the cost of attendance.

How SAI is used to calculate need

SAI replaces EFC in the need calculation put forward in the FAFSA. The new formula is as follows:

Need = Cost of attendance (COA) – Student Aid Index (SAI) – other financial assistance (OFA)

The SAI is used by the school you attend (or plan to attend) to determine your need. The school will take the total cost of attendance, subtract the number calculated for SAI, and then further subtract any other aid—such as scholarships—you might receive from the school.

What’s left is the amount you need to cover the COA. The higher your need, the more need-based aid you can get. But, again, Federal student aid is rarely enough to cover it all. So, saving, applying for scholarships, and looking for other ways to cover costs (such as private student loans) will remain a vital part of paying for college.

The bottom line

The FAFSA Simplification Act has made applying for federal student aid a bit easier. By pulling more information from the IRS website and changing some of the thresholds for aid, more students might be eligible for different forms of aid, particularly Pell Grants, Subsidized Direct Loans, and Federal Work-Study programs. However, even with all of that, it’s important to plan ahead.

And do a reality check. If, after all the aid and loan avenues are maxed out, you still have a lot of so-called “unmet need,” perhaps it’s time to consider plan B, such as starting out at a lower-priced state school or community college.