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Home » Student Loans » FAFSA » Student Aid Index: What To Know About The Changes To Financial Aid

Student Aid Index: What To Know About The Changes To Financial Aid

Updated: November 2, 2021 By Robert Farrington

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student aid index

For decades, the Expected Family Contribution (EFC) has been a critical number for all students and their families as they consider the costs of college.

However, the FAFSA Simplification Act is changing everything by replacing the EFC with the Student Aid Index (SAI).

Although the act was passed in 2021, the changes will not be implemented until the 2023-2024 academic year. The delay will allow the Department of Education to prepare for the changes. Here’s what you need to know about the EFC and its replacement.

Table of Contents
What Is The EFC?
Why Is The EFC Being Replaced?
What Is The Student Aid Index (SAI)?
How Will The SAI Change The FAFSA?
Multiple Students Will Be Treated Differently
Final Thoughts

What Is The EFC?

The EFC, Expected Family Contribution, is a number determined by the federal government and colleges through the FAFSA. Essentially, it represents the dollar amount that a family is expected to pay for college within a single year.

Your EFC determines how much needs-based financial aid, such as subsidized loans and Pell Grants, you're eligible for. For example, if you're school's annual tuition is $15,000 and your EFC is $5,000, you could qualify for up to $10,000 of needs-based aid.

Often it turns out to that a family's EFC (the amount of education cost they're supposed to cover from their own resources) is well beyond their financial reach. When that happens, parents and students may turn to merit-aid scholarships or unsubsidized student loans to fund the difference between the EFC and what they can actually afford.

Related: Understanding Subsidized vs. Unsubsidized Student Loans

Why Is The EFC Being Replaced?

The EFC will be replaced with the Student Aid Index (SAI). Both are calculated through formulas with information derived from the FAFSA form. The big reason behind the change is to create a better reflection on the true cost of colleges.

In the past, many families have interpreted the EFC as the total cost that they will be expected to pay. However, many face higher costs because colleges don’t meet the full need of students or include loans as a part of the financial aid package.

Additionally, some in higher education took have taken issue with the term "Expected Family Contribution." EFC detractors say that the term puts undue pressure on parents to finance their children's college costs.

The new term, Student Aid Index, can't erase the feelings that parents face when confronted with the costs of higher education. But it may allow parents and students paying for college to approach the financial challenge with fewer perceived expectations. With a more general term, parents may not feel solely responsible for funding their child’s higher education.

What Is The Student Aid Index (SAI)?

Due to the confusing nature of the EFC, lawmakers have decided to make a change. However, the reality is that the change is mostly in name.

The basics of the formula that calculator the resulting number will remain the same. However, the FAFSA Simplification Act has brought a few updates to the formula that will change the way colleges calculate a student’s financial needs.

How Will The SAI Change The FAFSA?

The FAFSA Simplification Act was included within the Consolidated Appropriations Act of 2021. The goal of the new law is to make things more simple for students and parents paying for college. Let’s take a look at some of the changes to the formula. 

Streamlined FAFSA Form

A major change is a more streamlined FAFSA form. Instead of answering over 100 questions, the FAFSA is only a few dozen questions. This should save students and parents time when applying for financial aid.

Cost Of Attendance Changes

The Cost of Attendance (COA) is another important number when sorting through college costs. Here are some of the changes including in the new law:

  • A student will not need to be attending school on at least a part-time basis to allow for a personal computer’s rental or purchase. The student can be enrolled at any time commitment for this allowance.
  • Transportation allowances between home, school, and work are allowed. A college financial aid administrator will set the actual transportation allowance.
  • A student will need to be enrolled at least half-time to receive an allowance for personal expenses.
  • Room and board allowances must be split into separate allowances for housing and meals. Meal allowances must be based on three meals per day.
  • Housing allowances for students living in college-owned or operated housing will be based on the greater of the average or median housing costs.
  • Housing allowances cannot be set to zero for students living with their parents at home.
  • An allowance for private student loan fees is no longer applicable. 
  • An allowance for loan fees on federal loans for students and parents will be mandatory, instead of at the discretion of a college.

Multiple Students Will Be Treated Differently

In the past, families with multiple students attending college at the same time on at least a part-time basis received special treatment. The parent assessment was divided by the number of family members in college.

Also, independent students had their family contribution divided by the number of students attending college on a half-time basis.

The SAI will not be divided based on the number of students in college within a family. With that, middle and high-income families may miss out on previous opportunities to save.

New Pell Grant Eligibility

Eligibility for Pell Grants will be based on a multiple of the poverty line. Households may qualify with incomes between zero and 175% to 400% of the poverty line. Additionally, incarcerated students will be eligible for the Pell Grant. 

Negative SAI Will Be Possible

If the student is eligible for the maximum federal Pell Grant, the Student Aid Index will be set to 0. But the financial aid formula can allow for an SAI to be below zero, as low as -$1,500. This can help colleges more accurately determine a student’s financial needs. 

Final Thoughts

Although we have not touched on every single change created by the FAFSA Simplification Act, the real question is will the changes help more families and students.

The answer will likely depend on your situation. Many of the changes seem to help low-income families with college costs. While middle-and-high-income earners could be receiving less help from the new index, especially if you have multiple children in college at the same time.

Additionally, the name change from EFC to SAI may help to mitigate some of the expectations facing parents. And just about everyone can agree that a streamlined FAFSA form is a win for everyone.

Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

Student Aid Index: What To Know About The Changes To Financial Aid
Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
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