Mark Kantrowitz and David Levy Authors of Filing the FAFSA ...
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Mark Kantrowitz and David Levy Authors of Filing the FAFSA January 25, 2016 1/27/2016 1
Transcript of Mark Kantrowitz and David Levy Authors of Filing the FAFSA ...
Mark Kantrowitz and David LevyAuthors of Filing the FAFSA
January 25, 2016
1/27/2016 1
Presenter
Presentation Notes
Impact of Changing the Timing of the FAFSA from Prior Year (PY) to Prior Prior Year (PPY) Session Overview Starting with the 2017-2018 award year, the Free Application for Federal Student Aid (FAFSA) will require prior-prior-year (PPY) instead of prior-year (PY) income and tax data. This change in the start date for filing the FAFSA applies to both new and continuing students. ��The use of older income and tax data will allow students to file the FAFSA three months earlier, starting on October 1 instead of January 1, better aligning it with the start of the college admissions season. Since most families will have already filed their federal income tax returns, more families will be able to use the IRS Data Retrieval Tool to simplify filing the FAFSA. ��This webinar will discuss the impact of the change from prior year to prior-prior year income and tax data on the FAFSA. While this change will make it easier for students (especially first-generation students) and families as they complete the FAFSA, what does it mean for scholarship providers as well as colleges and universities? The webinar will discuss the impact on students and families, financial aid award letters, professional judgment reviews and the distribution of financial aid. ��What steps can scholarship providers, schools and students take now to prepare for the change to prior-prior year? With the switch to PPY, students and families will be able to: File the FAFSA earlier. The FAFSA is made available January 1 of each calendar year, yet it is uncommon for a family or individual to be prepared to file an income tax return in the month of January. Under the new PPY system, the 2017-18 FAFSA will be available in October 2016, rather than January 1, 2017, and students can use the PPY’s completed income tax return. More easily submit a FAFSA. The IRS Data Retrieval Tool (DRT), which allows automatic population of a student’s FAFSA with tax return data and decreases the need for additional documentation, can be used by millions more students and families under PPY, since tax data from two-years prior would be readily available upon application. Receive earlier notification of financial aid packages. If students apply for aid earlier, colleges can in turn provide financial aid notifications to students earlier, ensuring that students and families have more time to prepare for college costs. Early notification also means more time for financial aid administrators to counsel students and families. But, with any change of this magnitude, there are many challenges and opportunities to resolve. During this webinar we will explore the steps scholarship providers, schools, and students can take now to prepare for the change to prior-prior year Intro: President Obama announced on Monday, September 14, 2015, that the Free Application for Federal Student Aid (FAFSA) will switch from prior-year (PY) to prior-prior-year (PPY) income and tax data, starting with the 2017-2018 FAFSA. The use of older income and tax data will allow students to file the FAFSA three months earlier, starting on October 1 instead of January 1. The use of prior-prior-year (PPY) income and tax data was first proposed by Mark Kantrowitz in 1996, soon after he provided the U.S. Department of Education with a prototype implementation of an online FAFSA. FAFSA on the Web (FOTW) launched the next year, starting with the 1997-1998 FAFSA. (Mark Kantrowitz is also co-author of the bestselling book, Filing the FAFSA.) Colleges were concerned that using two-year-old data instead of one-year-old data would affect the accuracy of the need analysis and lead to an increase in the number of financial aid appeals. But, studies have shown that income data is surprisingly stable from one year to the next, except in certain occupations (e.g., self-employed individuals and small business owners). So, subsequent data analysis showed that PPY would lead to a net decline in administrative burden for college financial aid administrators, causing NASFAA to switch from opposing the idea to championing it. This, plus legislative changes enacted by Congress in 2008, paved the way for the U.S. Department of Education to switch to the use of prior-prior-year (PPY) income and tax data. The Free Application for Federal Student Aid or FAFSA is the official mechanism used for determining federal student aid eligibility. The FAFSA uses conditional and skip logic along with algorithmic calculations to determine an Expected Family Contribution (EFC) based on financial information regarding the student’s financial circumstances for the household. The EFC amount is ultimately derived from taxed and untaxed income, assets, and factors such as geographical location, size of the household, and number in college. Currently, the financial information collected on the FAFSA is from the tax year immediately preceding the award year for which the student is applying. For example, the 2015 tax returns and associated data are used for completing the 2016-17 FAFSA. While the FAFSA and calculated EFC serve as the primary basis for determining award eligibility and amounts for the purposes of federal student aid, this information also informs the awarding process for many states and institutions which offer their own financial assistance. Much of the non-federal aid funds are awarded on a first-come, first-served basis, therefore, creating an urgency to complete the FAFSA as early as possible after it becomes available on January 1 in order to have the best chance of receiving some of that aid. While some states set their deadline for FAFSA completion in February or March, this window of time is typically insufficient to provide students and their families an opportunity to have their taxes filed prior to beginning the FAFSA filing process. The result is that at least the initial FAFSA filing is frequently done without having the most accurate information available, so it will require the student to return to their application to update it once their taxes have been filed. Additionally, ED introduced the Internal Revenue Service’s (IRS) Data Retrieval Tool (DRT) in 2009-2010 in an effort to minimize the length of time it takes to complete the FAFSA as well as improve the accuracy of the data collected. While this tool has proven very valuable in reducing errors as well as the burden on applicants and schools, it is only effective when it is available and works as designed, and it is generally not available for use before the first Sunday in February.. Under this methodology, for instance, the 2017-18 FAFSA will draw from 2015 year tax filing data. This is significant because, in this example, 2015 tax filing data will be available for retrieval using the DRT starting from the first day that the 2017-18 FAFSA is available for completion. This will greatly improve the accuracy of information used to determine eligibility for financial aid. Simultaneously, the change will allow for access to the FAFSA earlier than the current rollout date of January 1 since the PPY tax returns would already have been filed. This would afford colleges the ability to create and deliver a more timely and accurate award package to prospective students and their families, providing them the tools to make the best informed enrollment decisions regarding cost and affordability.
Mark Kantrowitz and David LevyAuthors of Filing the FAFSA
January 25, 2016
1/27/2016 2
Presenter
Presentation Notes
Impact of Changing the Timing of the FAFSA from Prior Year (PY) to Prior Prior Year (PPY) Intro: President Obama announced on Monday, September 14, 2015, that the Free Application for Federal Student Aid (FAFSA) will switch from prior-year (PY) to prior-prior-year (PPY) income and tax data, starting with the 2017-2018 FAFSA. The use of older income and tax data will allow students to file the FAFSA three months earlier, starting on October 1 instead of January 1. The use of prior-prior-year (PPY) income and tax data was first proposed by Mark Kantrowitz in 1996, soon after he provided the U.S. Department of Education with a prototype implementation of an online FAFSA. FAFSA on the Web (FOTW) launched the next year, starting with the 1997-1998 FAFSA. (Mark Kantrowitz is also co-author of the bestselling book, Filing the FAFSA.) Colleges were concerned that using two-year-old data instead of one-year-old data would affect the accuracy of the need analysis and lead to an increase in the number of financial aid appeals. But, studies have shown that income data is surprisingly stable from one year to the next, except in certain occupations (e.g., self-employed individuals and small business owners). So, subsequent data analysis showed that PPY would lead to a net decline in administrative burden for college financial aid administrators, causing NASFAA to switch from opposing the idea to championing it. This, plus legislative changes enacted by Congress in 2008, paved the way for the U.S. Department of Education to switch to the use of prior-prior-year (PPY) income and tax data. The Free Application for Federal Student Aid or FAFSA is the official mechanism used for determining federal student aid eligibility. The FAFSA uses conditional and skip logic along with algorithmic calculations to determine an Expected Family Contribution (EFC) based on financial information regarding the student’s financial circumstances for the household. The EFC amount is ultimately derived from taxed and untaxed income, assets, and factors such as geographical location, size of the household, and number in college. Currently, the financial information collected on the FAFSA is from the tax year immediately preceding the award year for which the student is applying. For example, the 2015 tax returns and associated data are used for completing the 2016-17 FAFSA. While the FAFSA and calculated EFC serve as the primary basis for determining award eligibility and amounts for the purposes of federal student aid, this information also informs the awarding process for many states and institutions which offer their own financial assistance. Much of the non-federal aid funds are awarded on a first-come, first-served basis, therefore, creating an urgency to complete the FAFSA as early as possible after it becomes available on January 1 in order to have the best chance of receiving some of that aid. While some states set their deadline for FAFSA completion in February or March, this window of time is typically insufficient to provide students and their families an opportunity to have their taxes filed prior to beginning the FAFSA filing process. The result is that at least the initial FAFSA filing is frequently done without having the most accurate information available, so it will require the student to return to their application to update it once their taxes have been filed. Additionally, ED introduced the Internal Revenue Service’s (IRS) Data Retrieval Tool (DRT) in 2009-2010 in an effort to minimize the length of time it takes to complete the FAFSA as well as improve the accuracy of the data collected. While this tool has proven very valuable in reducing errors as well as the burden on applicants and schools, it is only effective when it is available and works as designed, and it is generally not available for use before the first Sunday in February.. Under this methodology, for instance, the 2017-18 FAFSA will draw from 2015 year tax filing data. This is significant because, in this example, 2015 tax filing data will be available for retrieval using the DRT starting from the first day that the 2017-18 FAFSA is available for completion. This will greatly improve the accuracy of information used to determine eligibility for financial aid. Simultaneously, the change will allow for access to the FAFSA earlier than the current rollout date of January 1 since the PPY tax returns would already have been filed. This would afford colleges the ability to create and deliver a more timely and accurate award package to prospective students and their families, providing them the tools to make the best informed enrollment decisions regarding cost and affordability.
Switch to Prior-Prior-Year Income and Tax Data The FAFSA uses income and tax data from a prior tax
year, because the data can be “verified” by comparing FAFSA and income tax return data
This base year will switch from the prior-year (PY) to prior-prior-year (PPY), starting with the 2017-2018 FAFSA
There will be two FAFSAs in 2016, both based on 2015 income and tax data One FAFSA will start on January 1 (2016-2017 PY) One FAFSA will start on October 1 (2017-2018 PPY)
31/27/2016
Presenter
Presentation Notes
Switch to Prior-Prior-Year Income and Tax Data The FAFSA uses income and tax data from a prior tax year, because the data can be “verified” by comparing FAFSA and income tax return data This base year will switch from the prior-year (PY) to prior-prior-year (PPY), starting with the 2017-2018 FAFSA Since the switch to prior-prior year begins with the 2017-2018 FAFSA, there will be two FAFSAs in 2016: The 2016-2017 FAFSA, with a start date of January 1, 2016 The 2017-2018 FAFSA
2016 is a Transition Year from PY to PPY PY: The 2016-2017 FAFSA will be filed on or after 1/1/2016
based on 2015 income PPY: Instead of filing the 2017-2018 FAFSA on or after
1/1/2017 using income and tax data from 2016 federal income tax returns, families will file the form on or after 10/1/2016 using income and tax data from 2015 federal income tax returns
Thus, there will be two FAFSAs in 2016, both based on 2015 income data, one starting January 1 and one starting October 1.
2016 20172016-2017 (PY) 2015 (Base)
2016 20172017-2018 (PPY) 2015 (Base) 2018
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Presenter
Presentation Notes
(3) Impact of the Switch to Prior-Prior Year (PPY) Both of these FAFSAs will have 2015 as the base year. For students filing the 2016-2017 FAFSA for the first time, the base year runs from January 1 of the junior year in high school (spring term) to December 31 of the senior year in high school (fall term). For students filing the 2017-2018 FAFSA for the first time, the base year runs from January 1 of the sophomore year in high school (spring term) to December 31 of the junior year in high school (fall term).
FAFSA Calendar
Academic YearFAFSA
Application SeasonBase Year
for Income
7/1/2015 - 6/30/2016 1/1/2015 - 6/30/2016 2014
7/1/2016 - 6/30/2017 1/1/2016 - 6/30/2017 2015
7/1/2017 - 6/30/2018 10/1/2016 - 6/30/2018 2015
7/1/2018 - 6/30/2019 10/1/2017 - 6/30/2019 2016
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Impact of the Switch to Prior-Prior Year (PPY) The use of older income and tax data will allow
students to file the FAFSA three months earlier, starting on October 1 instead of January 1
This change will increase the length of the FAFSA filing season, from 18 months to 21 months (e.g., October 1, 2016 through June 30, 2018)
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Presenter
Presentation Notes
Impact of the Switch to Prior-Prior Year (PPY) The use of older income and tax data will allow students to file the FAFSA three months earlier, starting on October 1, instead of January 1. This change will increase the length of the FAFSA filing season, from 18 months to 21 months (e.g., October 1, 2016 through June 30, 2018)
Impact on Use of the IRS Data Retrieval Tool The switch to PPY will allow the use of the IRS Data
Retrieval Tool to prefill the FAFSA, starting with the 2017-2018 FAFSA Most applicants will have already filed their PPY federal
income tax returns by October 1 Automatic 6-month IRS tax extension ends on October 15
Prefilling the FAFSA will simplify and shorten the form Prefilling will also reduce the likelihood that the FAFSA
will be selected for verification Data elements that are transferred unmodified from the
federal income tax returns are not subject to verification
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Presenter
Presentation Notes
Impact on Use of the IRS Data Retrieval Tool It will also eliminate the need for complicated advice about when to file the FAFSA. Currently, students cannot file the FAFSA before January 1, but must file the FAFSA as soon as possible on or after January 1. Students who file the FAFSA in January, February or March tend to receive more than twice as much grant funding, on average, as students who file the FAFSA later. But, the FAFSA references specific lines on the federal income tax return, causing many families to wait until after they file their federal income tax returns to file the FAFSA. Waiting to file the FAFSA after filing federal income tax returns causes some families to miss state and college deadlines for financial aid. Some states and colleges have very early FAFSA deadlines for their own financial aid funds. For example, three states have February deadlines, eleven states have March deadlines and nine states award their financial aid funds on a first-come, first-served basis until the money runs out. Even some federal student aid programs, such as the Federal Supplemental Educational Opportunity Grant (FSEOG) and Federal Work-Study (FWS), have fixed allocations per college, so the money runs out quickly. Instead, applicants must use estimated income and tax information for the initial application. After filing their federal income tax returns, they may use the IRS Data Retrieval Tool to update the information on the FAFSA. With the switch to prior-prior-year income and tax data, applicants will be able to use the IRS Data Retrieval Tool to prefill the income and tax questions on the FAFSA, streamlining the application process. This will eliminate the need for later updates to the FAFSA after the applicants and their families file their federal income tax returns. It will also avoid the need for verification of income and tax information. It may encourage students to apply for financial aid earlier, so that students can file the FAFSA before many state and college deadlines. This will reduce the number of estimated aid packages, other than those that result from professional judgment
Impact on Financial Aid Award Letters Colleges usually prepare financial aid award letters only for
admitted students This is unlikely to change, as it reduces the financial aid office’s
workload Accordingly, colleges will continue to start packaging in February,
after the admissions office has completed admissions decisions The earlier availability of FAFSAs, however, may lead to award
letters becoming available in early March instead of late March and early April This will provide families with more time before the May 1 National
Candidates Reply Date Colleges will be able to provide official award letters for students
who apply for early action and early decision, instead of estimates
Colleges may be able to prepare financial aid packages for continuing students sooner
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Presenter
Presentation Notes
Impact on Financial Aid Award Letters Better Alignment of College Admissions and Financial Aid Applications This change will better align financial aid applications with the start of the college admissions season. Students will be able to apply for financial aid before or at the same times as they apply for admission, allowing cost considerations to influence the choice of colleges For first-time college students coming out of high school, this extension allows for institutions to be able to provide a more accurate financial aid package much earlier in the decision-making process for students and families. According to the National Association of Student Financial Aid Administrators (NASFAA), several colleges have already committed to aligning their institutional financial aid applications to use PPY income data beginning with the application for the 2017-18 year, including: the University of California system, Anne Arundel Community College, Loyola University, Michigan State University, Oregon State University, Stonehill College, University of Illinois Urbana-Champaign, University of Tennessee-Knoxville, Bennington College, University of Nebraska-Lincoln, National Louis University, Marygrove College, and University of Texas-San Antonio. By adding three months to the FAFSA cycle at the beginning, financial aid offices would have more time to work with students who are selected for verification or who may have indicated a significant change in their economic circumstances and need additional attention in the form of a professional judgment.
Impact on Professional Judgment Assets will continue to be based on a “snapshot” as of the date
the FAFSA is filed Income and tax information from the base year will continue to
be treated as a proxy for income and tax information during the award year
If income drops in the prior year as compared with the prior-prior year, more families may appeal for more aid
But, adjustments will continue to be based on a comparison of income during the base year with an estimate of income during the award year
Some families may successfully appeal based on having volatile income, such as self-employed parents (e.g., taxi drivers, pizza shop owners)
The workload associated with professional judgment will be offset by a reduced workload associated with verification
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Presenter
Presentation Notes
For example, if a family had high income in 2015, low income in 2016 but high income in 2017, the decrease in income in 2016 is unlikely to lead to a decrease in the EFC (and then an increase in financial aid).
Impact on Distribution of Aid Currently, students who file the FAFSA in January, February
or March tend to get more than twice as much grant funding, on average, as students who file the FAFSA later
Low-income students tend to file the FAFSA later or not at all
The earlier PPY start date, however, may cause more low-income students to qualify for state and institutional aid
The increased use of the IRS Data Retrieval Tool may cause more low-income students to file the FAFSA, since it simplifies the form
State governments are unlikely to adopt earlier financial aid deadlines
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Impact on the CSS/Financial Aid PROFILE Although the CSS/Financial Aid PROFILE form
already had an October 1 start date, it was based on PY data
The PROFILE will also be switching from PY to PPY The PROFILE will require actual income and tax
information from the prior-prior year, an estimate for the prior year and a best-guess projection for the current calendar year
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Impact of Transition Year on Aid Planning Some families try to realize capital gains prior to the
base year, to avoid artificially inflating income In particular, parents of high school juniors may have
been selling investments in 2015 to avoid realizing gains in 2016, thinking that they’d be under the old PY system
But, now the 2015 gains will count as income for the 2017-2018 FAFSA under the PPY system, reducing eligibility for need-based aid
They will need to appeal, arguing that the capital gains are a one-time event that is not reflective of ability to pay during the award year
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Presenter
Presentation Notes
Obviously, saying that they were timing the gains to try to game the financial aid system will not be an effective argument.
Other FAFSA Changes in 2016
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Order of Schools on the FAFSA Most students list colleges on the FAFSA in
preference order, listing their first choice college first
Previously, some colleges used the order as an indication of the student’s preferences, using it to influence financial aid and admissions decisions
Starting with the 2016-2017 FAFSA, the U.S. Department of Education no longer shares the list of colleges on the FAFSA with the colleges
If you are applying for state grants, it is still necessary to list an in-state public college first on the FAFSA
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Presenter
Presentation Notes
If student admitted to first college, half to two-thirds of the time the student would enroll Second college, one third Third college, 10% Since students are much less likely to enroll in a college that isn’t listed first, second or third, a college might decide against admitting the student in order to improve the college’s selectivity. This could lead to a strange situation, in which a student is admitted to a selective college but denied admission to lower-ranked colleges.
Recent Decreases in the Asset Protection Allowance The asset protection
allowance for married parent assets, where the older parent in the student’s household is 48 years old (the median age of parents of college-age children), has decreased from $52,400 in 2009-2010 to $30,300 in 2015-2016 and to $18,700 in 2016-2017.
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Thank You
Follow Mark Kantrowitz on Twitter at @mkant
Download Filing the FAFSA for free fromwww.edvisors.com/fafsa-book
161/27/2016
