If you have a high school student applying to college soon, it won’t be long before you learn about the Student Aid Index (SAI) (formerly known as EFC). Probably the most prevalent acronym in the world of college financial aid, the SAI is a number personalized to your family and used by colleges to determine your eligibility for financial aid. The SAI is calculated by inputting your family’s finances into a standard formula set by Congress.

Your SAI is intended to indicate your family’s financial strength. Colleges use it when determining how much financial aid to offer each student. It’s often higher than some families think it should be, but in some cases, it can end up lower. The SAI calculation determines both a parent contribution and a student contribution toward college costs, and then combines them.

The formula intends to determine your total financial resources, and then subtract the minimum amount of money your family needs for living expenses each year. It assumes the remaining amount can, in part, be used for college. Here’s a simplified explanation of how it works:

SAI Parent Contribution

1. Add up total annual parent income. This includes AGI, deductible payments to IRA/KEOGH, tax-exempt interest income, untaxed portions of IRA distributions and pensions, and foreign income exlusion. This is all found on your federal tax return.
2. Subtract parent income offets. These include any college grant and scholarship aid reported as income on the tax return, education credits, and federal work-study.
3. Subtract allowances against parent income. This includes U.S. income tax paid, a payroll tax allowance (determined by a table in the formula and intended to cover medicare and Social Security paycheck deductions), an income protection allowance (determined by a table in the formula based on family size), and an employment expense allowance (determined by parent income and intended to cover expenses of working parents, such as commuting).

The number you’ve reached based on the calculations above is called your Parent Available Income (AI) and is intended to represent how much of your income can be considered for college costs. Set that number aside for a moment.

1. Add up total parent assets. Include all cash, money in savings and checking accounts, net investments, net real estate, and net business/farm value, but don’t include your primary home or your retirement accounts. Add in any child support received for the last complete calendar year.
2. Subtract an Asset Protection Allowance. This number is intended to protect an amount of your assets that you have saved for emergencies. It’s determined by a table in the formula based on the age of the older parent.
3. Multiply your current total by 12%. This calculation ends up protecting most of your remaining assets for other needs, which is good news.

The number you’ve reached here is your Parent Contribution from Assets (PCA).

1. Add your Parent Available Income (AI) to the Parent Contribution from Assets (PCA) to determine the Parent Adjusted Available Income (PAAI).
2. Insert your PAAI into a complicated table. The calculations within the table change as your PAAI gets larger. To give you an idea of the table outcome, if your PAAI is $100,000, your calculated number is $38,440.

This resulting number is your Parent Contribution. Set that number aside.

SAI Student Contribution

1. Add up total annual student income. This includes AGI, deductible payments to IRA/KEOGH, tax-exempt interest income, untaxed portions of IRA distributions and pensions, and foreign income exlusion. This is all found on the federal tax return. If the student didn’t pay taxes, assume the total income is $0.
2. Subtract student income offets. These include any college grant and scholarship aid reported as income on the tax return, education credits, and federal work-study.
3. Subtract allowances against student income. This includes U.S. income tax paid, a payroll tax allowance (determined by a table in the formula and intended to cover medicare and Social Security paycheck deductions), an income protection allowance (determined by a set number in the formula, which is usually larger than most traditional students earn in a year), and an allowance for negative parent income (which means, if parent adjusted available income is negative, you’ll enter that as a positive number here).
4. Determine Student’s Contribution from Income. Take 50% of your current total to determine this figure.

Set that number aside for a moment.

1. Add up total student assets. Include all cash, savings and checking accounts, net investments, and net worth of any business or farm.
2. Determine Student’s Contribution from Assets. Take 20% of your current asset total.
3. Determine Total Student Contribution. Add Student’s Contribution from Income to Student’s Contribution from Assets. The resulting sum is your Student Contribution.

Ready to calculation your SAI? Add your Parent Contribution to your Student Contribution. The resulting sum is your family’s SAI. Though it doesn’t represent the amount that you’ll pay for college costs, colleges will assume you can contribute this amount when they determine how much financial aid to offer your family. Colleges will take their total cost of attendance, subtract your SAI, and the resulting figure is called your financial need. This is the amount that a financial aid office can give you in need-based financial aid.

Though Federal Student Aid provides worksheets that allow you to hand calculate your own SAI, you can much more easily use our SAI Calculator to reach the same result. If you’d like to talk with us once you have your estimated SAI, give us a call. We’re happy to walk through the numbers and answer any questions. You can reach us at (800) 449-MEFA (6332).