FAFSA, SAI and Pell Grant · guide
Small businesses and family farms on the FAFSA
Starting with the 2026-27 FAFSA, the net worth of three kinds of family assets no longer counts toward the Student Aid Index: a family farm the family lives on, a small business with no more than 100 full-time or full-time-equivalent employees that the family owns and controls, and a commercial fishing business, including its vessels and permits. Section 80001 of Public Law 119-21 made the change, effective July 1, 2026. Before it applied, net worth of a business or farm went through an adjustment table that counted 40% of the first $175,000 and up to 100% above $870,000, and then 12% of the result flowed into the parents' side of the formula. For married parents of a household of four with $82,000 of AGI and a qualifying shop worth $260,000, the exclusion lowers the index from about 9,088 to 5,143. Businesses with more employees, farms the family does not live on and investment property still count. The simulator shows the difference for your own figures.
What the business exclusion is worth on your FAFSA
SAI lowered by the exclusion
3,945
| SAI, business excluded (2026-27) | 5,143 |
| SAI if it were counted | 9,088 |
| Amount the business table would add | $112,500 |
| Pell, excluded vs counted | $2,252 vs $740 |
Family of four, married parents, tax paid of 5% of AGI. Only a qualifying family business or farm is excluded.
For 2026-27 a change in the 2025 budget law takes the family business and the family farm out of the asset questions, for most owners.
Checked by Radif Partners · Editorial policy · How we calculate
What the law took out of net worth
The FAFSA already left out the family home. Section 80001 of the 2025 budget law extends that list. It amends section 480(f)(2) of the Higher Education Act so that net worth excludes, in addition to the principal residence, a family farm on which the family resides, a small business with not more than 100 full-time or full-time-equivalent employees (or any part of such a business) that is owned and controlled by the family, and a commercial fishing business with its related expenses, including fishing vessels and permits (Public Law 119-21, section 80001). The change applies from award year 2026-27 and to every later year.
The Federal Student Aid guide for 2026-27 was published before the law was signed, and it still carries the business and farm adjustment table. That table remains in use for assets the exclusion does not reach. A qualifying business or farm should add nothing to the formula, whatever the table would have produced. The FSA SAI and Pell Grant Eligibility Guide shows where the table plugs in: line 13 of Formula A for parents, with matching lines in Formulas B and C.
How much a business used to add
The adjustment table softens the value of a business before it is assessed, then the result joins savings and investments. Here is the same family of four with $82,000 of AGI and $12,000 of savings, with businesses of different sizes, first with the business excluded as the law now requires, then counted as the table would count it.
| Business net worth | Amount the table would add | SAI, excluded | SAI, counted | Pell, excluded / counted |
|---|---|---|---|---|
| $120,000 | $48,000 | 5,143 | 6,649 | $2,252 / $746 |
| $260,000 | $112,500 | 5,143 | 9,088 | $2,252 / $740 |
| $650,000 | $320,500 | 5,143 | 20,211 | $2,252 / $0 |
| $1,400,000 | $982,500 | 5,143 | 57,548 | $2,252 / $0 |
A business worth $120,000 would add $48,000 to assets and move the index by 1,506 points. At $650,000 the adjusted figure reaches $320,500 and the index climbs past the point where Pell ends. For this family, the exclusion is the difference between a Pell Grant of $2,252 and none, which is why owners of qualifying businesses should make sure the value stays off the form.
Farm families with land but modest income
Farms show the effect most sharply, because land values are high while cash income can be low. Picture married parents with five people at home, $58,000 of AGI, $8,000 of savings, and a farm they live on with a net worth of $900,000. Excluded, as the law now provides, their student's index is about -1,128 and the Pell Grant $7,395. If the farm were counted, the table would add $482,500 and the index would jump to about 0, above the cut-off of 14,790 at which the 2025 law removes Pell altogether.
The condition is residence. A farm the family lives on is excluded. A second farm the family does not live on, or acreage held as an investment, is not, and its net worth still goes through the table. A family that lives on one parcel and farms several should be ready to show the aid office which land it lives on and how the operation is organized.
Testing whether your business qualifies
Three conditions come from the text. Size: no more than 100 full-time or full-time-equivalent employees. Ownership: the family owns the business, or a part of it. Control: the family controls it. A family that owns a minority share in a company it does not run fails the control test even if the company is small. A business with 140 employees fails the size test no matter who runs it. The law sets no dollar ceiling on the business's value: a qualifying business worth several million dollars is excluded just as a small one is.
Some cases are not settled by the statute alone, such as how part-time staff convert into full-time equivalents or how a family is defined when relatives share ownership. When the answer is unclear, ask the financial aid office of each college how it applies the rule and keep its reply. The Department may issue further guidance; until then, the text of the law is the reference.
Cash in the business or cash at home
The exclusion draws a line through a family's money. Value held inside a qualifying business, its equipment, inventory, receivables and the balance of its own bank account, sits outside the formula. The same dollars moved into a personal savings account become reportable assets, and 12% of them counts for parents. A family that pays itself a large distribution just before filing therefore raises its index, while one that leaves working capital in the business does not. Assets are measured on the day the form is filed, so timing matters.
Income is a different matter. Profit that passes through to the owners' tax return is part of AGI whether it is distributed or not, and AGI is the main driver of the index. The exclusion protects the value of the enterprise, not the earnings it produces. A shop owner with $150,000 of business profit on the return will still see a high index even with the shop itself left out.
Independent students who own a business are covered too. The amended definition of net worth applies to every formula, so a student who runs a small company or works a family farm and files as independent leaves the qualifying asset off as well. For them the stakes follow their own asset rates: Formula B adds 20% of the other assets of an independent student without children straight to the index, and Formula C counts 7% for a student with dependents before the assessment schedule applies.
Reporting it on the form
Net worth means what the business or farm is worth minus the debts owed on it. For 2026-27, follow the form's instructions for a business or farm that meets the exclusion, so that it adds nothing to the index. Other assets still go on the form as usual: cash, savings, checking, investments including real estate other than the home, and 12% of their total counts for parents. The SAI calculator computes the index without a business line, which matches the result for qualifying owners; the simulator above adds the business back to show what the exclusion is worth. For a broader look at the 2026 changes to aid, see the Pell changes page and the FAFSA estimate.