Applying for financial aid for the 2017-18 school year is proving to be a bigger headache than usual for college students and their families — especially those who are low-income.
The IRS Data Retrieval Tool, which lets students import tax information into the Free Application for Federal Student Aid, or FAFSA, and student loan income-driven repayment applications, will likely be unavailable until the beginning of the next FAFSA season, the Department of Education and the IRS said in a joint statement last week.
The next FAFSA season begins Oct. 1, 2017. The tool has been down since early March due to IRS concerns that identity thieves might have used it to obtain information that they then used to file fraudulent tax returns.
Borrowers can still complete these documents online, but for now, they’ll have to manually enter tax information.
“The students who rely on financial aid the most are the ones who are most impacted,” says Justin Chase Brown, director of scholarships and financial aid at the University of Nebraska-Lincoln.
Here’s what college students and student loan borrowers need to know.
Filing the FAFSA without the data retrieval tool
Without the data retrieval tool, applying for aid is more cumbersome for the millions of students who haven’t yet completed the FAFSA, according to the think tank New America. That could include returning college students who still need to renew their FAFSA; students attending schools with later financial aid deadlines, such as community colleges; and students who decide to attend college at the last minute.
Those students need to manually enter 2015 tax information on the FAFSA, which can make it harder to complete the application in one sitting. For first-generation college students, or those whose parents might not be able to help navigate the process, even little inconveniences can mean the difference between getting financial aid and giving up.
Students can find the necessary tax information for themselves or their family through the following sources:
- Their family’s 2015 tax return or a transcript issued by the IRS
- The tax professional who prepared their family’s 2015 taxes
- The tax software their family used for 2015 taxes
FAFSA verification can be another obstacle
Colleges and the Department of Education use the FAFSA verification process to ensure that the information students provide on the FAFSA is correct.
Only about a quarter of FAFSA filers are asked to verify their information. Information submitted via the data retrieval tool doesn’t need to be verified, and those who don’t use it may have a greater chance of being selected for verification. Low-income students eligible for federal Pell Grants are also more likely to be chosen, says David Sheridan, director of financial aid at the Columbia University School of International and Public Affairs.
“This process hurts the people who this whole system is supposed to help the most,” Sheridan says.
Under normal circumstances, students selected for verification can use the data retrieval tool to update the FAFSA even if they didn’t use it to complete their initial application. With the tool down, students must request a copy of their or their family’s 2015 tax transcript from the IRS — another obstacle.
Families can get their tax transcript online if they fit several criteria put in place for security reasons, including having a mobile phone or credit card account, a mortgage, a home equity loan, a home equity line of credit or a car loan in their name or a parent’s name.
Families without access to credit face yet another barrier to financial aid, although they’re likely to need it the most. They’ll have to go online or call 800-908-9946 to request a copy of their transcript via mail, which takes five to 10 days.
Applying for income-driven repayment without the data retrieval tool
In addition to the FAFSA, federal student loan borrowers can typically use the IRS Data Retrieval Tool to complete the income-driven repayment plan application. Income-driven plans set borrowers’ monthly student loan payments at 10%, 15% or 20% of their income, making the bill more manageable.
Borrowers must submit income information to apply for an income-driven plan and again each year to recertify their income. Those who don’t recertify on time might see a higher monthly payment.
While the data retrieval tool is unavailable, borrowers should still apply for income-driven repayment on studentloans.gov. Instead of using the tool, they’ll need to fax or mail one of the following to their federal student loan servicer, or upload the documents onto their servicer’s website:
- Paper copy of their most recently filed federal income tax return
- Copies of pay stubs
- Most recent IRS tax transcript
The online income-driven repayment application includes details about submitting income documentation, according to the joint Department of Education and IRS statement.
The data retrieval tool will remain unavailable “until extra security protections can be added,” the statement says.
In the meantime, members of Congress and higher education industry groups led by the National Association of Student Financial Aid Administrators are calling on the department to let students verify their family’s income with signed copies of tax returns, which might be easier to obtain than an IRS tax transcript.
The IRS is locking down accounts as it discovers which taxpayers have been affected by fraudulent use of the data retrieval tool, and it will notify those taxpayers by mail, the statement says. The agency hasn’t said how many taxpayers were affected.