personal finance | november 13, 2024
Financial aid for college funding: 5 important things to know
Consider these points when developing a savings strategy for your child’s college education.
Key Insights
Trying to save for the full sticker price of your child’s four-year college education can be daunting.
Remember that most schools don’t meet 100% of a family’s financial need, based on the FAFSA—-and loans are often part of the financial aid package.
Don’t let the quest for financial aid eligibility deter you from saving. You don’t often hear about people who are unhappy that they saved too much.
Roger Young, CFP®
Thought Leadership Director
Parents of young children receive a lot of advice about saving for college. Trying to cover the full sticker price can be overwhelming—even for an in-state public school. For most people, it makes sense to estimate how much financial aid your family might be eligible for when developing a savings strategy. As you factor financial aid into the total savings you will need, consider these five points.
1. Colleges probably expect you to pay more than you think you can afford.
The government and most colleges award financial aid based on your FAFSA—the Free Application for Federal Student Aid. The information you provide on your FAFSA determines your Student Aid Index (SAI). Your SAI depends on many factors, with the most important being your family’s income. If your SAI is less than a college’s cost of attendance, the difference is considered your “need.”
Starting with the 2024–2025 school year, the SAI replaced the previous metric, called the Expected Family Contribution (EFC). The new name is intended to convey that the number is a factor in determining financial aid, rather than the actual amount a family will be required to pay. There were several changes with that transition, and the new FAFSA was intended to significantly simplify preparation of the form. Unfortunately, the rollout was delayed and fraught with problems. For the 2025–2026 school year, the FAFSA is scheduled to be available December 1, 2024. Most families with college students should complete the FAFSA, even if there are some remaining technical issues this year.
As an example of the calculation, a hypothetical dual-income family of four earning $140,000 with $50,000 saved in a 529 college savings plan (or other nonretirement accounts) would have an SAI of around $25,000. (See “Estimated Student Aid Index for a family of four” and the appendices for more information.) At a private college costing $60,000 per year, this family would have $35,000 of need. At an in-state public college with a $24,000 annual cost, their need would be zero. The SAI amount may surprise you and could be a higher portion of your annual income than you would expect.
Keep in mind that accumulating more savings doesn’t increase your SAI nearly as much as increasing your income. At most, only 5.64% of additional assets are added to the SAI. An increase in income, on the other hand, can raise your SAI by as much as 47%.
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Estimated Student Aid Index for a family of four, 2025–2026 school year
| Total value of parents’ cash and nonretirement investments ($) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Parents’ adjusted gross income ($) | - | $25,000 | $50,000 | $75,000 | $100,000 | $125,000 | $150,000 | $175,000 | $200,000 | |
| $60,000 | 707 | 1,467 |
2,227 | 2,987 | 3,747 | 4,507 | 5,267 | 6,115 | 6,985 | |
| $80,000 | 4,242 | 5,032 | 5,882 | 6,795 | 7,765 | 8,850 | 9,970 | 11,257 | 12,583 | |
| $100,000 | 8,713 | 9,885 | 11,185 | 12,586 | 14,096 | 15,606 | 17,116 | 18,626 | 20,136 | |
| $120,000 | 15,475 | 16,985 | 18,495 | 20,005 | 21,515 | 23,025 | 24,535 | 26,045 | 27,555 | |
| $140,000 | 22,088 | 23,598 | 25,108 | 26,618 | 28,128 | 29,638 | 31,148 | 32,658 | 34,168 | |
| $160,000 | 28,701 | 30,211 | 31,721 | 33,231 | 34,741 | 36,251 | 37,761 | 39,271 | 40,781 | |
| $180,000 | 35,314 | 36,824 | 38,334 | 39,844 | 41,354 | 42,864 | 44,374 | 45,884 | 47,394 | |
| $200,000 | 41,927 | 43,437 | 44,947 | 46,457 | 47,967 | 49,477 | 50,987 | 52,497 | 54,007 | |
| $220,000 | 48,525 | 50,035 | 51,545 | 53,055 | 54,565 | 56,075 | 57,585 | 59,095 | 60,605 | |
| $240,000 | 54,950 | 56,460 | 57,970 | 59,480 | 60,990 | 62,500 | 64,010 | 65,520 | 67,030 | |
| $260,000 | 61,333 | 62,843 | 64,353 | 65,863 | 67,373 | 68,883 | 70,393 | 71,903 | 73,413 | |
| $280,000 | 67,673 | 69,183 | 70,693 | 72,203 | 73,713 | 75,223 | 76,733 | 78,243 | 79,753 | |
| $300,000 | 74,013 | 75,523 | 77,033 | 78,543 | 80,053 | 81,563 | 83,073 | 84,583 | 86,093 | |
The table shows SAI based on 2023 family income on the left and certain assets at the top. Those assets can include cash, stocks, bonds, mutual funds, and other investments, as well as the value of real estate other than your primary home and any business ownership. It excludes retirement accounts (such as an IRA or 401(k)), but 529 college savings accounts are included. Assumptions that affect SAI: The student is a dependent, has assets equal to 2% of the parents’ assets, and has income below $11,500. The family has no non-work income or other assets for FAFSA purposes. The family uses the married filing jointly status and standard deduction for federal income tax.
Source: T. Rowe Price calculations based on the 2025–26 FAFSA® Pell Eligibility and SAI Guide (PDF).
See the Appendix (in Downloaded PDF) for additional estimates, including different family sizes and for single parents.
2. Colleges may not give you the amount of financial aid you need.
Fewer than 10% of four-year colleges meet 100% of their students’ demonstrated financial need, according to the College Board. Their data suggest that many meet less than 75% of financial need. Even then, the exact amount can vary widely from student to student. Be conservative in estimating how much need-based aid your family will receive.
3. Financial aid provided includes loans.
Your aid package is not necessarily “free money”—loans can represent a large part of your overall financial aid, especially for families with significant income. In fact, federal loans accounted for 25% of financial aid for undergraduates in 2022–2023, according to the College Board.1 So, even if a college offers financial aid equal to your need, your family could still ultimately have to pay more than your SAI. Saving more now can help you limit the number of loans you may need to take in the future.
4. Your child may not receive large merit or athletic scholarships.
Merit scholarship offers can be very hard to predict. Some colleges regularly give out scholarships as a form of discounting, while others don’t offer any. Meanwhile, athletic scholarships are primarily offered at Division I schools and generally don’t provide a full ride for most sports.
5. Rely on your numbers instead of hypothetical amounts.
There are tools available that can help you estimate your financial aid and the amount you may need to save each month. To get more specific with your estimates, check out the online net price calculator (NPC) provided by each college. Just enter your financial data (anonymously, if you wish), and you’ll receive an estimated financial aid package for that school. Results from the NPC can then inform your inputs into a savings calculator, such as this College Financing Planner.
If a calculator suggests what seems to be an unrealistic amount, don’t despair. Save what you can and work toward a plan that enables your child to graduate. And whatever you do, don’t let the quest for financial aid eligibility deter you from saving.
Save what you can and work toward a plan that enables your child to graduate. 
- Roger Young, CFP®, Thought Leadership Director
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2Ugift® is a registered service mark of Ascensus Broker Dealer Services, LLC.
A 529 college savings plan’s disclosure document includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. You should review the 529 plan offered by your home state or your beneficiary’s home state and consider, before investing, any state tax or other state benefits, such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan.
1Figure SA-3 in “Trends in College Pricing and Student Aid 2023” (PDF).
Important Information
This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not intended to suggest that any particular investment action is appropriate for you. Please consider your own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
All investments are subject to market risk, including the possible loss of principal. The charts and tables are shown for illustrative purposes only.
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