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Is someone in your family college-bound? Take note: The Free Application for Federal Student Aid (FAFSA) is undergoing major changes. The revised form will arrive in December this year for the 2025-2026 school year.
You fill out the FAFSA to request federal need-based financial aid to help you pay for college. Typically, a new FAFSA is released annually on Oct. 1 for the school year that starts the following fall. This year's release is delayed so the 2025-2026 FAFSA changes can be incorporated.
That doesn't mean it's too soon to start planning. A lot already is known about the new FAFSA. Let's go through its most significant revisions.
Exit EFC, enter SAI
The newly revised Free Application for Federal Student Aid (FAFSA) no longer calculates an Expected Family Contribution—a.k.a., EFC. Instead, a new factor called the Student Aid Index, or SAI, now influences how much federal need-based financial aid an applicant receives.
What's the SAI?
The shift from EFC to SAI was made, in part, to more accurately describe the figure's function. Despite its name, the EFC wasn't meant to express how much a family would pay toward a student's college education. Instead, the SAI was created to re-frame how the figure is used as a guidepost to determine how much aid a student is eligible to receive.
The information you input on the FAFSA about you and your family’s financial profile will determine your SAI. The index will equal the sum of your parents’ available income, your income and assets.
A school determines a student's financial need by subtracting the SAI, and outside financial assistance, from the cost of attending that college. A lower SAI indicates a higher financial need. And greater need results in eligibility for more federal financial aid—from sources that could include grants, subsidized loans and work-study programs.
EFC vs. SAI: What's changed?
The SAI's name isn't all that's new. Like the EFC before it, the SAI reflects a family's income, assets and household size. But some factors that determine the SAI differ from those used to calculate the EFC. Here's a breakdown:
Multiple students in college
Previously, the EFC could go down if an applicant had siblings attending college. Now, the number of family members in college doesn't affect the SAI. For some families, this change may be offset, at least in part, by the increased income protection allowance (IPA).
Income protection allowance
The IPA is an amount subtracted from parent and/or student income before calculating the SAI. The IPA is rising significantly with the introduction of the new FAFSA. IPA amounts depend on the number of people in a household—but generally, a parent's IPA is now about 20% higher than it was in previous years' EFC calculations.
Some student income sheltered from SAI
The way EFC was configured before, 50% of a student's annual income was part of the total. Now, up to $9,400 doesn't factor into the SAI calculation at all. If the student earns more than that, then 50% of the additional amount is added to the SAI.
Less untaxed income to report
The new FAFSA only considers income reported on federal tax returns. That means you no longer must report certain untaxed income sources, including:
- Contributions to tax-deferred retirement accounts, such as 401(k)s and 403(b)s. This change may benefit parents who increase or maximize their retirement-savings paycheck deductions.
- 529 education savings plan distributions from grandparents. Previously, up to 50% of distributions from grandparent-owned 529 plans toward the student's education were added to the EFC. The new FAFSA doesn't treat those distributions as income. Unlike parent- or student-owned 529 distributions, they don't count as assets either.
Child support now treated as an asset
Before the overhaul, a parent receiving child support would report the money as untaxed income. Now, the FAFSA treats those received payments as assets. That means a smaller percentage of their value is added to the SAI.
Negative SAI value
The calculation that produces the SAI can result in a negative number as low as -$1,500. Previously, the EFC couldn't drop below zero. Allowing the SAI to be a negative value helps identify the neediest students. And it may enable some to receive financial assistance beyond the cost of attendance that can cover other college-related expenses.
Pell Grant eligibility
A new formula now determines eligibility for Pell Grants. It's simpler than it used to be, factoring in the SAI, along with adjusted gross income (AGI). Some students who wouldn't qualify for a Pell Grant based solely on AGI now might be eligible for an award based on their SAI.
State & local tax adjustment
Unlike the EFC, which could be reduced based on the applicant's state and local tax payments, the SAI isn't affected by how much a family pays in state and local taxes.
Who's affected by SAI changes & how?
Generally, the new SAI formula is projected to result in increased aid for most families. But the impacts may not be the same for everyone.
Families—especially middle- and high-income households—with more than one child in college may see a net loss in the total aid they receive since the SAI doesn't factor in a multiple-student discount. People in high-tax states may also see some negative ramifications since state and local tax payments don't lead to SAI reductions.
Low-income families—especially those with the greatest financial need—may see the most benefit due to factors that allow the SAI to be a negative dollar amount. Such a result could help increase the amount of aid some students receive, which might help make college a feasible possibility for them.
Help with your financial planning for college
Determining how the new SAI formula affects you is a complex calculation and may influence your other financial decisions, such as college savings and other investments. You don't have the crunch the numbers alone. Contact George Dan, Financial Advisor at Thrivent for guidance on saving and financing for your higher education goals.
