What Is the Income Limit for FAFSA?

The Free Application for Federal Student Aid (FAFSA) is the primary application for federal student aid. While many believe there’s a fixed income ceiling, there is no single income limit for FAFSA eligibility. Instead, eligibility is determined by a comprehensive calculation of financial need, considering financial data from the applicant and, if dependent, their family.

The Student Aid Index and Aid Eligibility

Financial need and aid eligibility are determined by the Student Aid Index (SAI), a numerical index used by college financial aid offices. The SAI is an eligibility index number, not a dollar amount representing expected family contribution or aid received. This number is generated from FAFSA information, including income, assets, and family structure. A lower SAI indicates higher financial need, leading to greater potential for need-based aid.

The SAI is calculated by assessing the total financial resources of the student and, if applicable, their parents or spouse. An allowance for minimum living expenses is deducted from this total, with the remainder considered for college expenses. Most tax information for this calculation transfers directly from the Internal Revenue Service (IRS) to the FAFSA, with applicant consent.

Once the SAI is calculated, it is compared against a school’s Cost of Attendance (COA). The COA represents the total estimated annual cost to attend an institution, including tuition, fees, housing, food, books, supplies, transportation, and personal expenses. The difference between the COA and the SAI determines a student’s financial need, indicating the amount of need-based aid they may qualify for.

Income Categories for FAFSA

The FAFSA requires reporting various income types to calculate the Student Aid Index. Income falls into taxed and untaxed categories. Taxed income includes wages, salaries, business income, capital gains, interest, and dividends, generally from federal tax returns. Adjusted gross income (AGI) from the tax return is a primary component in the SAI calculation.

Untaxed income sources also contribute to the SAI calculation. These include untaxed portions of IRA or pension distributions, child support received, and foreign income excluded from taxation. For example, even if retirement account contributions are tax-deferred, distributions may count as untaxed income. Accurate reporting of all income types ensures a correct aid determination.

Not all income is counted for FAFSA purposes. Federal student aid, such as Pell Grants or federal loans, is not considered income. Certain welfare benefits, like Supplemental Security Income (SSI), SNAP, or WIC, are also excluded. Untaxed Social Security benefits are generally not included. It is important to distinguish between reportable and excluded income to avoid FAFSA errors.

Other Financial Factors in Aid Calculation

Beyond income, other financial factors influence the Student Aid Index (SAI) and, consequently, a student’s aid eligibility. Assets play a role in this calculation, encompassing cash, savings, checking accounts, and the net worth of investments. Investments that are considered include real estate (excluding the primary residence), money market funds, mutual funds, certificates of deposit, stocks, bonds, and 529 college savings plans owned by the student or parent. The FAFSA requires reporting asset values as of the date the application is filed.

While assets are considered, not all assets are counted equally or at all. For instance, qualified retirement plans, such as 401(k)s, IRAs, and pension plans, are generally not reported as assets on the FAFSA. The value of the family’s primary residence is also excluded from asset calculations. Historically, an asset protection allowance shielded a portion of parental assets, but for recent and upcoming aid years, this allowance has been reduced to $0. This means nearly all reportable assets are now considered in the calculation.

Household size is another factor impacting the SAI. A larger household size results in a higher income protection allowance, which can lead to a lower SAI and increased aid eligibility. The FAFSA also asks about the number of individuals in the household, including the student, parents, and other dependents, and this information helps determine the allowance for living expenses. While the number of family members simultaneously enrolled in college was previously a significant factor in reducing the SAI per student, this reduction is no longer part of the federal SAI calculation for aid years beginning 2024-2025. However, institutions may still consider this factor when awarding their own aid.