Tax Data Transfer to Help Streamline FAFSA Process

Carla Arsaga -

FAFSA simplification to be completed by 2024-2025; some measures implemented early, including Repeal of SULA

By Rick Cox

In a step toward simplification of the FAFSA, the FUTURE Act allows data sharing between the Internal Revenue Service and the Department of Education.

This will be used for:

· The FAFSA;

· Calculating and recertifying income driven repayment plans; and

· Confirming income for permanent and total disability (TPD) discharges.

The transfer of Federal Tax Information (FTI) to the FAFSA will streamline the process; however, it is necessary to protect this sensitive data. At this point, this transfer of data may require tweaking since data does not always transfer exactly as expected. FSA will watch the process and determine if there are data that needs to be reconciled or updated in this process.

Full implementation of the FAFSA Simplification and FUTURE Acts will not be completed until the 2024-2025 award year. However, several items have been implemented early:

1.       Repeal of SULA;

2.       Removal of Selective Service and Drug Conviction requirements to receive Title IV. The questions on the FAFSA and comment code will not be removed until 2023-2024; however, the text on the comment has been updated for 2022-2023;

3.       Pell Lifetime Eligibility Used (LEU) Restoration. This has been expanded to take into consideration closed schools, Pell Grants falsely certified, or loans discharged due to borrower defense. At this time, nothing has been published by the department on this expansion.

By the 2024-2025 award year, the removal of Selective Service and Drug Conviction requirements will be complete, homelessness questions will be eligible for the renewal process, and EFC will be replaced by the Student Aid Index. The SAI is considered a better representation of the amount of resources a student and/or families can contribute toward education. In addition, Estimated Financial Assistance (EFA) will be renamed Other Financial Assistance (OFA). The equation for determining need will be: Need = COA – (SAI) – (OFA). The SAI calculated may be a negative number down to -1500. Students not required to file a tax return in the base year will get an automated -1500 SAI.

Child Support will count in the SAI calculation. Family farms and small businesses are no longer excluded. Foreign earned income exclusion will now count as untaxed income.

The SAI can be negative. Auto Zero eligibility will be updated because of the requirements of the new formula.

The SAI and Auto Zero will compare Adjusted Gross Income to poverty levels to determine Pell eligibility and the SAI.

For most students, they will either receive the maximum or minimum Pell. Other students will have their Pell determined by the SAI.

Under the FAFSA Simplification Act, the goal is to not add new questions to the FAFSA but to eliminate questions; however, two questions will be added for research purposes. The new questions will be Race/Ethnicity and Gender Identity. These questions will not play a role in the determination of Pell but will be used to determine access, completion rate, loan indebtedness and other factors. The FAFSA will ask for the student’s spouse’s name and Social Security Number.

Colleges cannot have a policy that they will not consider a professional judgment.

A dependent student’s parent (parents are not married or are not living together) to be used on the FAFSA will now be based on which parent provides more support to the student instead of the parent with whom the student lived with most. The department has not provided the timeframe for the support for this purpose.

There will be some changes to the simplified needs analysis. There will be a cutoff of less than $60,000 and stipulations about certain tax schedules not filed.

Family size for dependent students will only include the student, parent, and any other dependents who live with and receive more than half their support from the parent.

The family size will now refer to IRS Code, Section 152, on the definition of a dependent and those who would qualify for the child tax credit under Section 24.

The Act allows more latitude on sharing FAFSA data.

New under this Act is the Provisional Independent Student category. This is a new status assigned to students unable to provide parent information on the FAFSA. Currently, these are rejected and an EFC is not calculated. Under the new formula, these will not reject and an SAI will be calculated. However, the financial aid administrator will need to review to determine appropriate eligibility for aid.

Based on the changes coming, the 2024-2025 award year will be full of updates in terminology, characteristics of the ISIR/SAR, and determination of eligibility.

Rick Cox is Global’s Executive Director of Regulatory Affairs and Compliance.