Financial aid for college and the student aid index: 5 things to know

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. 

Consider these points when developing a savings strategy for your child’s college education.

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.”

The SAI is a factor in determining financial aid, rather than the actual amount a family will be required to pay. Most families with college students should complete the FAFSA, even though there have been some technical issues with the form in recent years.

As an example of the calculation, a hypothetical dual-income family of four earning $140,000 with $50,000 saved in a 529 education 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%.

Grandparent-owned 529 account assets no longer count as income to the student on the FAFSA. This change means that, in most cases, funding a grandchild’s education through a 529 account no longer has any bearing on the student’s eligibility for financial aid that is based on the FAFSA.

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 24% of financial aid for undergraduates in 2023–2024, according to the  College Board. 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.

READYSAVE™ 529 mobile app

As an owner of a 529 plan account managed by T. Rowe Price, you can now access and manage your account anytime, anywhere, with the free READYSAVE™ 529 mobile app.

This app makes it easy and safe to immediately accomplish tasks you’re used to doing on the secure site or by calling in, all from your phone!

READYSAVE™ 529 mobile app capabilities include:

• Allowing you to regularly monitor or make changes to your account.
• Enabling you to easily contribute with one-time or recurring contributions.
• Simplifying the process to invite friends and family to help give your savings a boost with Ugift®* (sending them a digital invitation to contribute to your beneficiary’s account).

Download the READYSAVE^™ 529 app on the Apple App Store.
Download the READYSAVE^™ 529 app on Google Play.

* Ugift® is a registered service mark of Ascensus Broker Dealer Services, LLC.

Next Steps

Learn more or open an account today by visiting troweprice.com/college.

To see the full list of Appendix tables, please click on the blue "Download the PDF" button at the top of this article.