How Financial Aid Is Calculated: SAI, Pell Grant, and Offers

Financial aid is calculated with a single equation: your school’s Cost of Attendance minus your Student Aid Index equals your financial need, and that need sets the ceiling on the need-based grants, work-study, and subsidized loans the school can offer you.¹ Any non-federal help you receive, like a private scholarship, is subtracted too, which lowers the remaining need federal funds can fill.²

Two numbers drive the whole result. One comes from the school. The other comes from your FAFSA.

What Cost of Attendance Actually Covers

Cost of Attendance, or COA, is the school’s estimate of what one academic year costs. Federal law requires it to include more than tuition:³

Tuition and fees for a standard course load.
Books, supplies, and equipment, which can include a reasonable cost for a personal computer.
Food and housing, calculated differently for students living on campus, off campus, or with parents. On-campus housing uses the average or median charged to residents, whichever is greater.
Transportation between campus, home, and work.
A miscellaneous personal expense allowance.

Two extras apply to specific students. If you have children or other dependents, the school can add a dependent care allowance for the hours you spend in class, studying, at internships, or commuting. If you have a disability, the COA can include related expenses for services, personal assistance, transportation, and equipment, as long as another agency isn’t already covering them.³

Because each school builds its own allowances, COAs can differ significantly between schools in the same city. The number is an estimate of what a year costs, and it caps the total aid you can receive for that year.

How Your Student Aid Index Is Built

The Student Aid Index (SAI) is the number the FAFSA formula produces from your financial information. It replaced the older Expected Family Contribution starting with the 2024–25 award year under the FAFSA Simplification Act.⁴ Unlike the EFC, the SAI can go as low as −$1,500, which signals especially high need and increases your calculated financial need.⁵

Income Carries the Most Weight

The formula starts with total income: adjusted gross income from your tax return plus certain untaxed income like tax-exempt interest, untaxed IRA or pension distributions, and retirement account contributions.⁶ For dependent students, both the student’s income and the parents’ income are assessed.

Whose Income Counts Depends on Dependency Status

If the FAFSA treats you as a dependent student, your parents’ finances go into the formula alongside yours. Independent students report only their own information, plus a spouse’s if married.⁷ You’re generally independent if you’re 24 or older, married, a graduate student, a veteran, an orphan or ward of the court, or have legal dependents of your own. Living on your own or paying your own bills doesn’t count for FAFSA purposes.

Assets Count for Less Than People Expect

After income, the formula looks at non-retirement assets: cash and savings, investments, and real estate other than your primary home.⁶ Parent-owned 529 college savings plans are counted as parent assets, and parent assets are assessed at a maximum rate of about 5.64%, so only a fraction of their value moves the SAI.

For 2026–27, several things no longer count. Family-owned small businesses with 100 or fewer full-time employees don’t have to be reported. Family farms where the family lives are excluded. Distributions from 529 plans owned by grandparents or other non-parents are no longer reported as student income, removing a long-standing penalty for students whose grandparents help pay for college.⁸

Allowances That Reduce Income Before the Math

The formula doesn’t count every dollar. Three allowances lower income before the SAI is calculated:⁶

An income protection allowance for basic living expenses like food, housing, clothing, and medical care. The amount varies by family size.
A tax allowance for federal income tax and payroll taxes actually paid.
An employment expense allowance calculated as 35% of earned income, up to a capped amount, for working families.

One change under the FAFSA Simplification Act catches many families off guard: the formula no longer reduces your SAI when you have a sibling in college. That discount, which used to roughly halve the family contribution, was eliminated starting with 2024–25.⁴ The income protection allowance was raised to partially offset the loss. The asset protection allowance still exists in the formula, but the 2026–27 federal tables set it at $0 for all age groups, so it provides no reduction right now.

How the SAI Sets Your Pell Grant

The Federal Pell Grant is the largest federal need-based grant, and your SAI directly drives the amount. For 2026–27, the maximum Pell Grant is $7,395 and the minimum is $740.⁹

If you don’t automatically qualify for the maximum, your award is calculated by subtracting your SAI from $7,395 and rounding to the nearest $5. If that result falls below $740, you don’t receive a Pell Grant through the standard calculation. An SAI of $14,790 or higher, which is twice the maximum award, generally rules out a Pell Grant entirely.⁹

Some students receive the maximum Pell Grant regardless of the calculated SAI. Under the FAFSA Simplification Act, that automatic maximum is tied to family size, income relative to the federal poverty level, and whether the applicant or their parents had to file a federal tax return. Applicants who weren’t required to file taxes are assigned an SAI of −$1,500, which qualifies them for the full award.⁵

Why Two Schools Give Different Offers

Your SAI is the same everywhere. Your COA isn’t. A private university with a high COA can produce a large financial need number from the same SAI that yields a small need at a lower-cost school. That doesn’t mean the expensive school will actually give you more aid: each institution decides how much of your calculated need to fill, and with what mix of grants, work-study, and loans. Two award letters can differ substantially even when the underlying formula produced the same SAI.

When Your Situation Has Changed Since You Filed

The FAFSA uses tax information from an earlier year, so a job loss, a big drop in income, unusual medical bills, or a major family change may not show up in your SAI at all. In those cases, you can ask the school’s financial aid office for a professional judgment review. Federal law gives aid administrators authority to adjust individual data elements in your SAI or COA case by case when circumstances warrant it.

Federal guidance splits these into two categories. Special circumstances are financial: job loss, reduced income, unusual medical expenses. Unusual circumstances involve situations like parental abandonment, estrangement, or trafficking, which may justify changing your dependency status entirely.¹⁰

Contact the financial aid office at your school and ask how to file. Bring documentation: a termination notice, a letter from an employer, recent pay stubs, medical bills. Every school handles appeals on its own terms, and the aid administrator’s decision is final and can’t be appealed to the Department of Education. Filing early with thorough documentation gives you the best shot at an adjustment.

1
Federal Student Aid. How Financial Aid Is Calculated
2
Office of the Law Revision Counsel. 20 USC 1087kk – Amount of Need
3
Office of the Law Revision Counsel. 20 USC 1087ll – Cost of Attendance
4
Federal Student Aid. FAFSA Simplification Act Changes for Implementation in 2024-25
5
Office of the Law Revision Counsel. 20 USC 1087mm – Special Rules for Student Aid Index
6
Federal Student Aid. Student Aid Index (SAI) and Pell Grant Eligibility
7
Federal Student Aid. FAFSA Dependency Status Guide
8
Federal Student Aid. 2026-27 FAFSA Form and Pell Grant Eligibility Updates
9
Knowledge Center. 2026-27 Federal Pell Grant Maximum and Minimum Award Amounts
10
Federal Student Aid. Chapter 5 Special Cases