The old federal formula for higher education financial aid is dead. The new formula creates winners and losers. Specifically, the new formula harms middle-class families with more than one child in college at a time.

It’s not that the new formula doesn’t take family size into account at all—it does, barely. The issue is that the new formula calculates the total amount a family can afford to pay for college tuition and then makes the family pay that total amount for *each child in college*.

The new law, passed in late 2020 and just going into effect this month, calculates a Student Aid Index to determine how much aid the student could pay.

The Student Aid Index, for students who are dependent on their parents, is the sum of the student’s available money (a portion of savings plus a portion of income) and the parents’ available money.

The parents’ “Adjusted Available Income” is the key number in determining parents’ ability to pay. AAI is calculated using the parents’ income and wealth—specifically, it is the sum of the “Available Income” and the “Available Wealth.”

What is “Available Income?” In short, it is the parents’ total income minus some expenses. More precisely, “Available Income” parents’ total income minus (A) federal income taxes, (B) a portion of payroll taxes, (C) an “income protection allowance,” which is basically bare-bones living expenses for the family, and (D) an estimation of the parents’ employment costs, such as commuting.

The “income protection allowance” is where large families get a bit of a break—but not much. A family of three gets an allowance of $29,040 while a family of four gets an allowance of $35,870—reflecting the fact that living expenses are greater for larger families, and so the available income of a large family with $100,000 in income is less than that of a smaller family with $100,000 in income.

(Family size *doesn’t* matter in this formula when calculating available assets, which is a minor way the rules discriminate against large families.)

Parents’ expected contribution to their child’s tuition is a percentage of their Adjusted Available Income—a percentage that rises as AAI rises, similar to our graduated income tax rates. To simplify it a bit, parents with Adjusted Available Income of $50,000 are expected to pay about $11,750 in tuition. Every dollar above that is “taxed” at 47%.

But here’s where the new formula harms bigger families: Whatever the parents are deemed able to pay in tuition *in total*, they are expected to pay *per child*. This, of course, makes no sense.

So, let’s go back to those two families, each with a total income of $100,000. Let’s image each also has checking and savings accounts that add up to $25,000.

The family of four will get an income allowance of $35,870, leaving it with an Available Income of $64,130, while the family of three gets an allowance of $29,040, yielding an Available Income of $70,960.

If the oldest parent in each couple is 50 years old, then both couples get a $7,000 asset allowance, meaning $18,000 of their savings is considered fair game.

So, the bigger family has an Adjusted Available Income of $82,130 while the smaller family’s AAI is $88,960. The expected contribution for the smaller family is thus about $34,800, while the larger family’s expected contribution is a slightly lower $31,600.

And here’s the perverse part: If the family of four has both children in college next year, then they are expected to pay $31,600 *per child*. That’s $73,200 in total, which is larger than the family’s Available Income and nearly twice as much as the smaller family of the exact same income and wealth.

The old system, very sensibly, divided the parents’ expected contribution by the number of tuitions the parents were paying. The new system basically tells the second child, “Sorry, bud.”