Navigating the student financial aid process can feel overwhelming, with countless options, forms, and unfamiliar terminology to navigate. To simplify this process, the PayForED SAI Guide was designed to help families clearly understand the Student Aid Index (SAI) and maximize their financial aid opportunities.

The guide breaks down the FAFSA in clear, practical steps and offers strategies to strengthen your financial position. With the implementation of the One Big Beautiful Bill Act (OBBB), it is important for students, parents, and financial aid professionals to understand these new changes and it’s impact on a family’s ability to afford college.

Understanding the Student Aid Index (SAI)

The Student Aid Index (SAI) is the foundation of need-based financial aid. The SAI is a number generated by completing the FAFSA form.  The college financial office uses that number to determine how much need-based financial aid you qualify for at their college. Each year, the Department of Education sets specific rules that define the federal financial aid calculation.

Some of the states also use it for their aid programs.  Many colleges use the SAI to determine how much scholarship they can deploy from their funds.  Some colleges have a secondary process that is more detailed and is usually higher than the Federal SAI calculation.

When you first submit the FAFSA, you’ll see an estimated SAI.   After the FAFSA is processed, the official SAI number is found on a report called the FAFSA Submission Summary (FSS).

Here is how the colleges use the SAI in calculating your need.

Cost Of Attendance – SAI = Student’s Financial Need

Because each school’s costs are different, and every family’s situation is unique, the financial aid package offered by each college will also look a little different. That’s why understanding your SAI is such an important step in planning how to pay for college.

IRS Data Integration into SAI Calculation

The integration of IRS data into the FAFSA is one of the most significant changes introduced through FAFSA Simplification, beginning with the 2024–25 school year. Instead of manually entering tax information, the government will now import IRS data directly into the FAFSA. Applicants must opt in to this process—if they do not, their FAFSA will not be sent to colleges. In most cases, both the student and a parent will need to complete the FAFSA.

This new process replaces the IRS Data Retrieval Tool (DRT). With the updated system, identity verification occurs through the applicant’s FSA ID at login, making it critical to keep contact information current on StudentAid.gov. Parents and the student may need to create their FSA ID.  Click here to get the steps from PayForED  on how to do this.

For the 2026–27 FAFSA, tax information from the 2024 tax year will be used. FAFSA relies on a system known as “Prior-Prior Year,” which was introduced in 2015. This timing approach reduces stress by allowing applicants to use tax returns filed two years earlier, rather than rushing to complete the most recent year’s taxes. If taxes have not yet been filed, it typically takes 4–8 weeks before the information becomes available for FAFSA integration, depending on the filing method.

How is the Student Aid Index Calculated

Once the parents and student complete their FAFSA, the system will generate a single number as your SAI.  This number is critical for financial aid planning, but families need to understand how the SAI is calculated to make informed decisions.  A tool like the College Cost Analyzer can help parents and students comprehend the details of the SAI calculation before the FAFSA submission.

Understanding these details is important because the SAI is made up of four specific parts, and each one can be managed strategically. Depending on the student’s financial profile and the colleges under consideration, certain strategies may improve the student’s aid eligibility.

The SAI number is determined by four components:  Parent Income, Parent Assets, Student Income, and Student Assets.  These four quadrants are used for the typical dependent student.

Here is a sample of the PayForED SAI analysis report.  The better systems will generate these numbers and possible charts to explain their four quadrants.  The chart shows that the student’s SAI is $57,678.  Understanding the parent’s and student’s portions is critical for proper planning.  The FAFSA process does not provide this information.

SAI Calculation of the Parent’s 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 Calculation of the Parent’s 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 Calculation of the Student’s 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 Calculation of the Student’s Asset

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 $1,150 of unearned income will be tax-free; the next $1,150 is taxed at the child’s marginal tax rate, and any amount exceeding that will be 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.

SAI Calculation Changes for 2026-27 School year

The FAFSA SAI calculation by quadrant.

Overall SAI Changes

• In college, multi-child discount eliminated
• FAFSA submission required the use of the IRS data exchange via the IRS opt-in process. Non-compliance will result in FAFSA not being submitted.

Parent Income SAI Changes

• W2 contributions to retirement plans are no longer added back as income, yet retirement contributions like an IRA are included since they reside on the 1040 tax form
• Increase in Income Protection allowance but lost allowance for state residency.
• Child support is now reported as an asset and not income.

Parent Assets SAI Changes

• The small family business and farm value are not reported as an asset.
• Child support received is reported as an asset.

Student Income SAI Changes

• The following year, reporting of non-parent 529 distribution is no longer reported as student income.
• Increased income allowance

Student Assets SAI Changes

• No changes

Tax Information that will be imported to the SAI

With the new IRS data integration, only certain fields will be imported into the FAFSA.  The problem with the process is it is a blind submission.  The user cannot see the data that was imported into the FAFSA.

We are recommending that people consider using a SAI calculator to estimate your SAI under the new rules.  This is especially true for first fillers since you may be surprised by your SAI number after the calculation.  Our SAI tool is called the College Cost Analyzer.

You will need to know two terms: Federal Tax Information (FTI), which is the 1040 tax information. The second common term is Direct Data Exchange (FADDX) which is the process that replaced the DRT solution.

The following data is sent to the Department of Education from the IRS are considered FTI, starting with the award year 2025-26 data:

• Tax Year (ex. Award year 2026-27 is based on 2024 tax year information from the IRS)
• Tax Filing Status
• Adjust Gross Income (AGI)
• Number of Exemptions and Number of Dependents
• Income Earned from Work
• Taxes Paid
• Educational Credits
• Untaxed IRA distributions
• IRA deductible and payments
• Tax-exempt interest
• Untaxed pension amounts
• Schedule C net profit/loss
• Indicators for Schedules A, B, D, E, F, H
• IRS response code

The integration will also include an IRS response code. The code will indicate the status of the tax filer/ FTI with the IRS, to include one of the following:

• Tax filer and FTI provided to FTIM
• Not found at the IRS
• Found and a non-filer
• Found, but the IRS was not able to provide information

SAI can determine the types of financial aid

The student aid index is a crucial component of the financial aid process. It is a formula used to determine your eligibility for various types of financial assistance.  Students who qualify for need-based financial aid will see the type of aid in their financial award once they are accepted to the college.

As an example, a need-based student may receive Direct Federal loans in their financial award.  There could be two types: Subsidized and Unsubsidized loans.  A student who did not qualify for need-based financial aid will only see an Unsubsidized Direct Federal loan.

Other terms like grant and work student could also appear on the need-based student award.  It is important for students and parents to understand the types of scholarships on their award.

A merit scholarship is not dependent on need and normally is given for four years.  Some colleges will list a scholarship on the award, but it is need-based.  Need-based scholarships are not guaranteed yearly, so the student must verify the scholarship type before committing to a college.  This way, you can properly project your total cost and debt of attending that college.

What is SAI Summary

After completing the FAFSA and submitting your financial aid applications, you will receive a Student Aid Index (SAI). This figure is included in the FAFSA Submission Summary (FSS) report.

Understanding your SAI is essential, as it reflects your family’s financial need and helps predict the level of aid you may receive at different schools. At some institutions, a lower SAI may also influence admissions decisions, as a family’s ability to pay can sometimes play a role—although this is not always clearly explained to applicants.

How to read your SAI:

• Low SAI: Suggests higher financial need. Students with a low SAI are more likely to qualify for need-based aid such as grants and subsidized loans.
• High SAI: Suggests lower financial need. Need-based aid may be limited, but students can still be considered for merit-based scholarships or unsubsidized loans.

By interpreting your SAI, you’ll gain a clearer picture of the types and amounts of financial aid available, while also preparing for your share of college costs.

If the process seems complex, professional guidance can be helpful. The PayForED Find the Advisor network connects families with trained experts who specialize in financial aid and college payment strategies.