FAFSA 2026-27: What Counts, What Doesn't, and How the Student Aid Index Actually Treats Your Money

Families with a junior or senior in high school are about to file the form that decides a large part of what college costs them, and most of them will file it the way they file taxes: fill in the boxes, hit submit, hope. The boxes have rules. Knowing the rules a year in advance is worth real money. Here is the 2026-27 version in plain English.

SAI, not EFC

The Expected Family Contribution is gone. The FAFSA now produces a Student Aid Index. It is used the same way, colleges subtract it from their cost of attendance to determine need, but the formula is simpler, it can go as low as negative $1,500, and it no longer gives a discount for having two children in college at the same time. That last change hit a lot of families in 2024 and it is still true.

What the formula looks at

Income comes straight from the IRS, two years back: the 2026-27 form uses 2024 tax returns. There is an income protection allowance before any income counts; for a family of four in 2026-27 it is about $44,880 for parents, and $11,770 for the student’s own income. Above the allowance, parent income is assessed on a sliding scale that tops out at 47 percent.

Assets are valued on the day you file. Parent assets are assessed at 5.64 percent: every $10,000 in a parent’s brokerage or savings account adds roughly $564 to the SAI. Student assets are assessed at 20 percent: the same $10,000 in the student’s name adds $2,000. Same money, four times the effect.

What is not reported

This is the list that matters, because it is where planning happens without any trickery. The FAFSA does not ask about:

• Retirement accounts: 401(k), 403(b), TSP, traditional and Roth IRAs, pensions.
• The equity in your primary home.
• The cash value of life insurance and qualified annuities.
• New for 2026-27: the net worth of a family-owned business with 100 or fewer full-time employees, and a family farm you live on. Self-employed parents whose business value inflated their aid number in prior years get relief this year.
• 529 plans owned by grandparents or anyone other than the parent or student, and since the formula change, distributions from those plans no longer count as student income.

Two cautions. Roth IRA withdrawals, even of contributions, count as untaxed income on the FAFSA. And the CSS Profile, used by a few hundred mostly private colleges, does ask about home equity, business value and sometimes life insurance cash value. Know which form your child’s schools use.

The new Pell cliff

Before this year, families near the cutoff could receive a partial Pell Grant. For 2026-27 the rule is hard: an SAI at or above $14,790 receives no Pell Grant at all. Families near that line have a real reason to understand what moves the number, because a small change in reported assets can be the difference between some grant and none.

Where life insurance comes into this

I am a life insurance professional, so let me be direct about where this product belongs in a college conversation and where it does not. Cash value life insurance is not reported on the FAFSA. That makes it one of the places a family with a permanent insurance need and money beyond their retirement contributions can hold conservative savings without raising the SAI. It is not a reason to buy a policy, and anyone who tells you to move your child’s college fund into a policy to “hide it from the FAFSA” is selling you something at the expense of the actual plan. Protection first, always; a parent’s death is the single largest threat to a college plan, and a term policy is how you handle it. The FAFSA treatment of cash value is a secondary benefit for families where a permanent policy already makes sense.

What I would do this fall

1. Identify which forms each school uses: FAFSA only, or FAFSA plus CSS Profile.
2. Run a draft SAI now with the federal estimator, using 2024 income and today’s assets, so you know where you stand relative to the Pell line and to each school’s cost.
3. Check whose name savings are in. Student-owned money at 20 percent is the most common fixable mistake; a custodial 529 fixes it.
4. Time large transactions. Assets count on filing day. A bonus that lands the day before you file counts; the day after, it does not.
5. File early. Some state and institutional aid is first-come.

None of this is exotic. It is reading the rules before the game, which is what a plan is.