FAFSA Verification

20 million students complete the FAFSA every year to apply for financial aid from the federal government, states, and colleges. More than six million federal student loan borrowers are currently enrolled in income-driven repayment (IDR) plans to help keep their payments affordable and avoid default. For years, these students and borrowers have been able to use the IRS Data Retrieval Tool (DRT) to easily transfer their tax information into the online FAFSA and the online application for IDR plans. The DRT was abruptly taken down a month ago due to security concerns, and the Department of Education recently announced that it is expected to be offline until the next FAFSA season begins in October 2017.

The DRT is not just a “convenience” (as the IRS has described it), but the centerpiece of major improvements in simplifying essential financial aid processes. It has greatly increased efficiency and accuracy for consumers, colleges, and loan servicers. And its outage will have profound impacts on millions of students and borrowers who still need to apply for aid, complete verification, and submit IDR forms this year. We urge the Department of Education and IRS to work together to restore secure access to the DRT as soon as possible, and to do so in a way that avoids creating barriers to access for low-income students, such as requiring complicated financial or personal information.

We blogged last week about a number of things the Department of Education should be doing to mitigate the effects of the DRT outage. Meanwhile, as long as the DRT is down, students and borrowers are facing a more complicated, daunting, and time-consuming process to apply for aid and keep their student loan payments affordable. Each additional hurdle makes it less likely that people will get all the way through the process and be able to meet crucial deadlines.

How many students and borrowers will be affected by the DRT outage between now and October?

  • More than 8 million students (40% of all aid applicants) applied for aid between April 1 and September 30 in recent years. Many of these applicants used the DRT, and a greater share were expected to use it in 2017-18 due to recent improvements to the FAFSA timeline.  
  • 3.4 million federal student loan borrowers applied for IDR or updated their income information electronically and had access to the DRT in the most recent year.*

How will students and borrowers be affected by the DRT outage?

For the FAFSA:

  • Instead of using the DRT to quickly transfer their tax information and pre-populate the answers to up to 20 high-stakes questions, students will have to get a copy of their 2015 tax return and manually input their data into the FAFSA (both the 2016-17 and 2017-18 FAFSAs require 2015 tax data). If they don’t have a tax return on hand, they can try to retrieve information from their tax software or tax preparer if they used one, or request a tax transcript from the IRS, but getting an official tax transcript can take up to 10 days by mail. It is possible but more difficult to quickly get an electronic transcript: you first need to have a mobile phone under your own name plus a personal credit card, mortgage, home equity loan, or car loan – hurdles that make that process inaccessible for many, particularly low-income families.
  • After submitting the FAFSA, students who don’t use the DRT may be more likely to be selected for an additional process called “verification” and required to get an official tax transcript to confirm their FAFSA information before they can receive their aid. For example, Purdue University reported that the share of aid applications flagged for verification doubled from 10% to 20% after the DRT was taken offline. The Department of Education has touted the DRT as “the fastest, easiest, and most secure method of meeting verification requirements.” Without it, students have to request official tax transcripts, with the hurdles discussed above. We, along with a bipartisan group of 43 lawmakers and national associations of financial aid professionals, college admissions counselors, and college access professionals have asked the Department to also accept signed tax returns while the DRT is not available.
  • The additional delays in getting the necessary documentation to apply for aid or complete verification will affect whether students receive their financial aid in time to enroll in college. Many states and colleges require the FAFSA for their own aid programs, many of which are first-come, first-served. For example, a Buzzfeed article reports that Texas state grants for needy students have already run out for this year, so students backlogged in verification are losing out on $5,000 of grant money. Additionally, more than half of financial aid administrators surveyed said that verification sometimes, often, or almost always results in students being unable to enroll on time. Without the DRT, the delays caused by verification will be even worse.

For IDR plans:

  • Borrowers with taxable income cannot complete the process of applying for IDR or updating their income online at StudentLoans.gov, which took an average of just 10 minutes when the DRT was available. The online application will create a PDF that borrowers will need to send into their loan servicer, along with a copy of their most recent tax return. Depending on their servicer, borrowers may be able to upload the required documents onto the servicer’s website or will need to mail or fax everything.
     
  • The additional hurdles for documenting income without the DRT affect not only borrowers who are applying for IDR, but also borrowers who are already in IDR. They are required to update their income documentation every year, and borrowers who miss those annual deadlines can face unaffordable spikes in monthly payment amounts that increase their risk of delinquency and default, as well as interest capitalization that can add substantial costs. As mentioned in our earlier blog post, we urge loan servicers to give borrowers in IDR more time to submit their updated income documentation while the DRT is down. 

* There are no publicly available data on how many electronic IDR applications were previously submitted between April and October (each borrower is on his or her own timeline), or how many borrowers specifically used the DRT.

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This week, the U.S. Department of Education announced two changes that will simplify an important but frequently overlooked part of the financial aid process, starting with the 2017-18 school year. As a result, low-income students who file a Free Application for Federal Student Aid (FAFSA) will face fewer barriers to receiving the aid they qualify for, and college financial aid offices will be able to spend more time helping students instead of chasing paper.

The financial application process doesn’t end when students submit the FAFSA, which is the gateway to federal grants, loans, and work-study as well as most state and college aid. Last year alone, 5.3 million students – one in four FAFSA applicants – were required to provide extra documentation to their colleges before they could receive federal student aid. This added step in the FAFSA process is called “verification,” and it mostly affects students with family incomes low enough to qualify for a need-based federal Pell Grant. Our 2010 study, After the FAFSA, found that that the complexity of the verification process unnecessarily prevents many low-income students from receiving aid they are otherwise eligible for. Even for those who get through all the paperwork, the added hurdles delay access to needed aid by weeks or even months into the school year.

The Department has now announced that it is eliminating certain burdensome verification requirements based on clear evidence that they are not worth the trouble for students, schools, or taxpayers.

One of the reasons the Department of Education currently flags students for verification is if the income reported on their FAFSA appears too low to support their household. These students must then document their sources of income and may have to explain how their family survives financially. A recent Boston Globe piece details just how difficult this process can be, and college financial aid administrators have reported tremendous and unnecessary costs to students and schools.

Starting in 2017-18, students will no longer be targeted for verification simply because their families are very poor. The Department of Education said it is eliminating this type of verification because evidence showed that “the burden on families […] far outweighed the benefits.” Nearly all students selected for this form of verification (95%) did not see changes to their Expected Family Contribution (EFC), which is used to determine federal aid amounts.

In addition, students who are flagged for verification for other reasons will no longer have to provide extra paperwork if someone in their family received SNAP benefits (formerly called food stamps) or if they made child support payments. The Department of Education found that verifying those pieces of information did not make students more or less eligible for aid.

We applaud the Department of Education for removing these unnecessary verification requirements, which made the aid application process more complicated for the neediest students. This is an important step, but more still needs to be done to ensure that the FAFSA verification process protects the integrity of the federal student aid program without unduly denying or delaying access to aid that eligible low-income students need to succeed.

This Administration has already dramatically simplified the initial FAFSA filing process for millions of students and families, making it possible for them electronically transfer their tax information into the FAFSA and apply for aid when they typically apply to colleges, as TICAS and many others have urged. We look forward to working with Congress and the Department of Education to further simplify the aid application process from beginning to end for students and schools, both by eliminating unnecessary questions on the form and by further reducing unnecessary verification and paperwork.

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