Having a plan in place to save for college is an important first step — but it is only part of the education planning picture. Understanding the financial aid process, knowing which applications to complete, positioning a student to receive the most aid possible, and recognizing how admissions decisions connect to financial outcomes can make an enormous difference in what a family ultimately pays for college. This article highlights key strategies every family should understand when preparing for the college application and financial aid process, including:

• How the Student Aid Index (SAI) works and what steps you can take to lower it
• What the FAFSA is, why every family should file it, and what has recently changed
• How the CSS Profile differs from the FAFSA and why filing both matters
• The connection between smart admissions decisions and the financial aid a student receives

Understanding the Student Aid Index (SAI)

The Student Aid Index(opens in new tab), or SAI, is the key metric colleges use to calculate a student’s financial need. A school’s Cost of Attendance(opens in new tab) (COA) minus the SAI equals a student’s demonstrated financial need. In general, the lower the SAI, the greater a student’s demonstrated financial need, and the more aid they may be eligible to receive based on that need. This is commonly referred to as need-based aid.

However, the amount and type of aid a student ultimately receives will depend on the school’s financial aid policies, available funding, and the specific types of aid for which the student qualifies.

The SAI is calculated using the income and financial information reported on the FAFSA. One of the most valuable steps a family can take when planning for college is to estimate their SAI well before the student begins applying to schools. Knowing the SAI early gives a realistic sense of what to expect from a cost and financial aid perspective and can help inform which schools make sense financially on their list. Visit StudentAid.gov(opens in new tab) for a free estimate.

How to Lower the SAI and Maximize Aid

While the SAI is largely driven by income, there are a few meaningful steps families can take before filing financial aid applications to help lower the SAI and maximize financial aid. The earlier these are addressed, the better.

• Maximize Retirement Account Contributions: Retirement accounts such as 401(k)s, 403(b)s, and IRAs are generally not reported as assets on the FAFSA and are therefore not included in the SAI asset calculation. In addition, contributions to pre-tax retirement accounts can provide valuable tax benefits and may reduce a family’s taxable income for the year, ultimately reducing the SAI. Making contributions to these pre-tax accounts is one of the most effective ways to reduce a family’s assessable income.
• Transfer Student-Owned Accounts to Parents: Student-owned assets such as bank accounts and custodial accounts (UTMA/UGMA(opens in new tab)) are assessed at 20% for financial aid purposes, while parent-owned assets are assessed at just 5.64%. When appropriate, moving assets from a student’s name to a parent’s name before the relevant FAFSA reporting date may reduce the impact those assets have on the family’s financial aid calculation. Note: Families should be cautious about transferring assets solely for financial aid purposes and should consider the tax, legal, and financial implications before making any changes.
• Pay Off Debt: While using liquid assets, such as cash, to pay down outstanding debt may modestly reduce the assets considered in the financial aid calculation, income generally remains a more significant factor in determining a family’s SAI. As a result, making large financial decisions solely to reduce reportable assets may unnecessarily reduce a family’s liquidity without meaningfully improving their financial aid eligibility. We recommend discussing any significant financial decisions with your financial advisory team before taking action.

The FAFSA — What It Is and Why Every Family Should File

The Free Application for Federal Student Aid, or FAFSA, is the primary gateway to grants, federal loans, work-study programs, and in many cases institutional merit scholarships. It is free to submit, and filing it is one of the most important steps any family can take in the college planning process.

It is a common misconception that families with higher incomes will not qualify for any financial aid(opens in new tab) and therefore, have little reason to complete the FAFSA. In reality, filing the FAFSA can still be worthwhile for many families, regardless of income, for several important reasons:

Many schools use the FAFSA data to award merit (non-need based) scholarships and institutional tuition discounts, not just need-based aid. Failing to file may prevent a student from being considered for these programs that require a FAFSA to be submitted.

Federal student loans available through the FAFSA typically carry better terms than private loan alternatives.

If a family’s financial situation changes due to a job loss or a medical event, having a FAFSA on file makes it significantly easier to request a reassessment of the aid package.

The process has been substantially simplified compared to prior applications. The form now consists of approximately 36 questions and uses an IRS data import tool to pre-fill much of the financial information.

The golden rule: submit the application as close to the October 1 opening date as possible. Financial aid is distributed on a rolling basis, and earlier submissions have access to a larger pool of available funds.

What Not to Report on the FAFSA

One of the most common and costly mistakes families make is over-reporting assets on the FAFSA. The following are not reportable assets and should not be included:

• Retirement accounts (401k, 403b, TSP, IRA)
• The value of a primary residence
• The value of vehicles, boats, or other personal property

Including these assets can significantly reduce or eliminate eligibility for need-based financial aid. If a FAFSA has already been submitted with retirement accounts inadvertently included, families can log in to StudentAid.gov(opens in new tab), remove those values, and resubmit a corrected application.

Recent FAFSA Changes Worth Knowing

The FAFSA has undergone significant updates in recent years. Here is a brief overview of the most important ones:

• Elimination of the sibling discount: Each student’s SAI is now calculated individually, regardless of how many siblings are enrolled in college at the same time, a change that may reduce aid for families with multiple children.
• Divorce and separation: The parent responsible for filing the FAFSA is now the one who provides the greater portion of the student’s financial support, regardless of the custody arrangement. If that parent who provides the greater support has higher income or reportable assets, it could result in a higher SAI and potentially reduce the student’s eligibility for need-based financial aid.
• Farm and small business inclusion: The net worth of family-owned businesses or farms is now reported as an asset and factored into the SAI calculation, which may affect aid eligibility for families who own these assets.
• Support from outside the immediate family: Financial contributions from grandparents or extended family no longer need to be reported as untaxed income on the FAFSA. This has been a significant positive change for many families, as financial support from grandparents was previously treated as student income and could have a meaningful impact on a student’s financial aid eligibility. Under the current FAFSA rules, families can generally receive this outside support without it directly increasing the student’s SAI.
• Simplification: The form has been reduced from 108 questions to approximately 36, with an IRS data import tool that pre-fills much of the financial information automatically.

The CSS Profile — Do Not Skip It

In addition to the FAFSA, many families will need to complete a second financial aid application: the CSS Profile(opens in new tab). Administered by the College Board, the CSS Profile is used by colleges to determine eligibility for institutional aid (non-need based) funded directly by the school. It examines a family’s finances in greater detail than the FAFSA, including factors such as home equity, current debt obligations, and medical expenses.

The CSS Profile is required by approximately 250 colleges nationwide, most of which are private universities and selective public institutions, like UVA and the University of Michigan. If a school uses both applications, families should file both. Submitting only the FAFSA at a CSS Profile school could mean leaving significant institutional aid on the table.

Read more about the differences between the FAFSA and CSS Profile here.(opens in new tab)

How Admissions Decisions Impact Financial Aid

The admissions process and the financial aid process are more connected than most families realize. A few strategic decisions can have a meaningful financial impact:

• Apply where the student is competitively positioned: According to College Transitions(opens in new tab), applying to schools where a student ranks in the top 25–33% of the applicant pool significantly improves the chances of receiving merit scholarships and tuition discounts. A school that has a more expensive sticker price may become much more affordable for a student who is a strong candidate compared to the rest of the applicant pool.
• Consider test scores carefully: Strong standardized test scores can unlock significant merit scholarships at many schools, in some cases covering full tuition. It is worth researching each school’s merit aid criteria before deciding whether to submit scores.
• Set realistic expectations around scholarships: The most reliable source of scholarship aid is the institution itself and the government, not private scholarships. Completing the FAFSA and CSS Profile and applying to schools where a student is competitively positioned will usually have greater impact than an outside scholarship search.
• Encourage demonstrated interest: Many colleges track engagement from prospective students before applications are submitted. Campus visits, information sessions, and communication with admissions offices all signal demonstrated interest and can strengthen both an application and a financial aid offer.

Getting Started

With so many moving pieces involved in the college planning process, it can be helpful to have a clear, step-by-step roadmap to follow. Cassaday & Company has put together a College Planning Checklist that walks families through the process chronologically — from sophomore year of high school through evaluating financial aid award letters.

Click here to download the checklist.

Click to view and download

Our team of in-house professionals has developed a few additional resources that clients have found helpful when it comes to education planning:

• Financing Higher Education: From Birth Through College
• Getting Smart About Paying For College: A Step-By-Step Guide
• What is a 529 Plan and How Could It Impact Your Financial Plan?
• Should 529 Plans Be Owned By Parents or Grandparents?

College planning is an important piece of a family’s holistic financial plan, and the earlier these conversations begin, the more options a family will have. Every situation is different, and the right strategy depends on income, assets, family goals, and the broader financial plan.

If there are questions about how to position a family for the best possible financial aid outcome, or how college planning fits into a broader financial picture, we encourage you to reach out to your advisory team. We are always happy to talk through the options and help identify strategies that make sense for your family.

If you are not yet a Cassaday & Company client, we are happy to offer a complimentary, no-pressure evaluation of your current financial plan and goals. Please contact us at info@cassaday.com or (703) 506-8200.

By: Ryan Muscatella, CFP®, APMA®, BFA™

The material presented above is solely for information purposes and has been gathered from sources believed to be reliable. However, Cassaday & Company cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Cassaday & Company, nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.