FAFSA Tax Year
It may not seem intuitive that the Federal Application for Federal Student Aid uses tax information from 2 years ago. But changing the tax year used made little change in award packages and makes for a smoother aid application process.
Since applying for the 2017-18 academic year, the requirements for the FAFSA changed to help students and parents with completing the FAFSA since the tax data is readily available via the IRS.
Prior Prior Year
Tax information has been a standard way to collect that income data for students and parents.
However, student and parent taxes for the previous year was often being compiled and submitted to the IRS at the same time the student was trying to apply for financial aid for the upcoming school year. It was almost as if the cart was before the horse for many families who needed financial aid information to make college decisions or simply plan for the upcoming college costs. If nothing else, it put unnecessary pressure on families to complete taxes in order to get earlier financial aid determinations.
Schools and the U.S. Department of Education saw students routinely complete a FAFSA year after year, and most families saw only minor changed in income from year-to-year. This analysis led the financial aid community to work toward a change in federal statute to allow "prior prior year" (sometimes referred to as PPY) v. "prior year" tax information when determining aid eligibility.
Beginning with the 2017-18 FAFSA, students and families provided income information from the 2015 tax year rather than the 2016 tax year. For 2018-19, the FAFSA used 2016 tax data, and so on.
Using an earlier tax year for determining aid eligibility makes it significantly simpler for families to complete their FAFSA, because they will are using information from tax records that had been completed and processed by the IRS many months earlier.
Moreover, most aid applicants (and their parents, when required) would then be able to use the FAFSA/IRS Data Retrieval Tool (DRT) to automatically transfer required tax return information directly from the IRS onto their FAFSA. Using the DRT not only increases the accuracy of information used to determine aid eligibility but also eliminates the burden for many students and parents of providing tax return transcripts for verification of the FAFSA income information.
Notice Regarding IRS Data Retrieval
The data retrieved through this process will simply note "Transferred from the IRS" when viewed by the student or parent within the FAFSA Web application or when reviewing your Student Aid Report. The IRS data itself will be detailed only to the schools listed on the FAFSA so as to limit unintended access to your tax information.
The FAFSA process used to begin each January 1 for the upcoming school year. Now that earlier taxes are being used, the FAFSA can be available for families beginning October 1 of each year.
Students applying for college can now complete the FAFSA soon after their admission applications. Returning college students can also apply for the upcoming academic year soon after each school year begins.
Significant Changes in Income
Again, studies completed by the U.S. Department of Education found that family finances remained similarly comparable when going back two years. Not only was anticipated income for the aid year in line with the prior year, it often lined up with the prior-prior year.
At the same time, some family income information does change negatively and significantly. Students (and parents) who have substantially lower income levels for the academic year or who experience excessive out-of-pocket medical expenses not reimbursed or covered by insurance can consider the special circumstances process for the appropriate academic aid year.
Financial aid staff can then assess how these changes may affect your eligibility for aid programs. Note that changes, even significant ones, may change your Estimated Family Contribution (EFC) as determined by the FAFSA but may not change your aid eligibility due to individual aid program criteria. Each case is different. We can review your change in income to advise you how aid eligibility may be affected through a special circumstance review.