Taxes and college savings · guide
Net price: what a year of college really costs
The net price of a year of college is its cost of attendance minus the grants and scholarships the student receives, Pell Grant included. Loans and work earnings are not subtracted: they are ways of paying the net price, not reductions of it. For 2026-27 the federal piece is predictable. The maximum Pell Grant is $7,395, and a full-time student’s award is roughly that maximum minus the Student Aid Index, down to a minimum of $739.50 by the formula; a student whose SAI reaches $14,790, twice the maximum, gets no Pell under the 2025 law. At a college with a $34,000 cost of attendance and a $9,000 institutional grant, a student with an SAI of -$1,500 faces a net price of about $17,605, one with an SAI of $4,000 about $21,605, and one with an SAI of $20,000 about $25,000. The rest of the gap between those families comes from each college’s own aid policy, which only that college can estimate.
Net price in three numbers
Net price for the year
$20,105
| Pell Grant estimate | $4,895 |
| All grants together | $13,895 |
| Share of the cost covered by grants | 41% |
Pell estimate: $7,395 minus the SAI, full-time. Low-income families can also qualify for the minimum award through the income lines, not modeled here.
The published cost of a college is the starting point; the net price is what remains after free money, and it is the number to plan around.
Checked by Radif Partners · Editorial policy · How we calculate
From sticker price to net price
Each college sets a cost of attendance for each kind of student: tuition and fees, plus allowances for housing, food, books and supplies, transportation and personal costs. That is the sticker price, and few families pay it. The net price is what is left after subtracting grants and scholarships, the aid that never has to be repaid. Federal Pell Grants, state grants, institutional grants and private scholarships all count. Loans, work-study earnings and payment plans do not, because they are ways of paying the bill rather than reductions of it.
The distinction matters because two colleges can trade places once aid is counted. A private college with a $68,000 cost of attendance that offers a $41,000 grant has a net price of $27,000. A public college at $29,000 with a $3,000 grant comes to $26,000. Comparing sticker prices would point to the wrong one. The college savings calculator works from this net figure, because it is what savings actually have to cover.
The federal part: Pell Grant for 2026-27
The maximum Pell Grant for 2026-27 is $7,395: the $6,335 set by the appropriations law of February 3, 2026, plus the $1,060 added under 20 U.S.C. 1070a (Public Law 119-75). For a full-time student the award is roughly the maximum minus the Student Aid Index, as long as the result is at least the minimum award, 10% of the maximum, or $739.50 by the formula. A student whose SAI is zero or negative, down to the floor of -$1,500, receives the full $7,395. Families below certain income lines can also qualify for the maximum or the minimum award directly, without the subtraction; the Pell Grant calculator applies those lines.
Two rules in the 2025 law cut Pell off above certain points (Public Law 119-21, sections 83001 and 83004). A student whose SAI is at least twice the maximum award, $14,790 this year, is not eligible. And a student whose non-federal grant aid already equals or exceeds the cost of attendance gets no Pell, since there is nothing left for it to cover. Neither rule touches most families, but both belong in a careful estimate.
| Family | SAI | Pell Grant | College grant | Net price |
|---|---|---|---|---|
| Family A | -$1,500 | $7,395 | $9,000 | $17,605 |
| Family B | $4,000 | $3,395 | $9,000 | $21,605 |
| Family C | $20,000 | $0 | $9,000 | $25,000 |
The college’s part: institutional and state aid
Pell is the only grant you can compute from federal rules alone. Institutional grants follow each college’s own policy, based on the FAFSA, sometimes on a second financial aid form, and on academic or other criteria. State grants follow state rules. That is why college websites often offer a net price calculator of their own: it applies the school’s grant policy to a family’s answers and returns an estimate. Run it for every college on the list, use the same inputs each time, and treat the result as an estimate rather than an offer. Then compare the result with the federal floor computed above. If a college’s estimate shows less total grant aid than the Pell Grant you qualify for, an input is probably wrong.
The Student Aid Index drives most need-based aid, federal and institutional. It replaced the expected family contribution starting in 2024-25 and can go as low as -$1,500. The SAI calculator estimates it from the 2024 tax-year figures the 2026-27 FAFSA uses, and the negative SAI page explains what a figure below zero means.
Reading an award letter for the net price
Award letters mix three kinds of money on one page, and they do not always label them clearly. The first kind is gift aid: grants and scholarships, which lower the net price. The second is self-help aid, mainly federal loans and work-study, which help pay the net price but do not reduce it; work-study is earned only as the student works, and loans are repaid with interest. The third is sometimes a line for a parent PLUS loan or a private loan, which is pure financing. Some letters add up all three and subtract the total from the cost, leaving a small or even zero “amount due” that hides the real price.
To get the true figure, write down the full cost of attendance, including housing and living costs even if they are not billed by the college, then subtract only the gift aid. Check whether each grant is for the year or for one term, and whether it renews. If a letter shows only direct costs such as tuition and campus housing, add a realistic estimate for books, transportation and personal expenses before comparing it with another college’s letter. A student living at home can lower the cost of attendance, but the college may then lower some grants as well, so ask how housing choice affects the package.
Finally, compare letters side by side using the same three numbers for each college: cost of attendance, gift aid, net price. The loan lines matter later, when you decide how to pay, but they should never drive the choice of college.
Paying the net price
Once the net price is known, the question becomes how to cover it. The usual sources are savings, current income, the student’s earnings, and loans. Federal loans for a dependent first-year student are capped at $5,500, rising to $7,500 from the third year, and parents can add parent PLUS loans of up to $20,000 a year per student under the limits in force since July 2026. A family facing a net price of $25,000 with $5,000 of savings to spend each year would need about $14,500 more after the student’s first-year federal loan. The loan limits page lists every cap, and the parent PLUS calculator shows the monthly cost of borrowing the rest.
The net price usually changes over four years. Tuition tends to rise, the SAI is recomputed each year from new tax data, and some institutional grants are renewable only with a minimum grade average. Building a plan on year-one numbers alone understates the total. A family that runs the mini-calculator for each year with a modest cost increase, and checks the renewal terms of every grant, gets a far more honest number than the first award letter shows.