Q. Many families claim exemptions for people who are not family members, so using number of exemptions instead of household size would not be a fair way to determine eligibility.
A. True. But likewise, there are families for whom the number of exemptions claimed do not represent all family members (such as when divorced parents agree to claim children in alternate years). The basic IRS guidelines for claiming dependents other than children are that the person lived with and received more than half their support from the taxpayer, which parallels Title IV requirements for including an individual in household size. Exemptions, like AGI, are verifiable by an IRS match. For circumstances in which the number of exemptions does not reflect the family’s situation, FAAs would still have professional judgment authority to modify that data element in either direction.
Q. In divorce situations, using the tax return to apply for federal aid will cause the assessment to come from a different parent, as many non-custodial parents claim the student. Do you intend to move away from using custodial parent income?
A. No change is intended here; we do not advocate performing the eligibility determination on the non-custodial parent. The same rule that currently determine which parent’s finances are used would continue to apply. Use of a check-off on the tax return would be one option for triggering a student aid application, but not the only one.
Q. Actual need does not always equate to reported Adjusted Gross Income, so why use AGI as the primary basis? Is it very surprising that the research has shown that AGI is a good indicator of ability to pay. It takes me back to the days of maximum income limits for Guaranteed Student Loans.
A. AGI is currently the main source of income assessment for most families, but the treatment of the family’s income in the current formula does not usually result in a figure that is a true reflection of the family’s ability to pay. We propose using AGI in a very different way than the current formula, in that we would make a direct comparison to the poverty line for that family’s size and relate that to need for grant aid, rather than trying to derive a dollar amount of support from the family and then using that expected contribution to determine the amount of grant aid.
Q. What will you do with a negative AGI of several thousand dollars? Having a negative AGI does not necessarily mean that there is no income, only that they are lowering their AGI with some type of loss or losses. They are now eligible for Pell and are being treated the same as families with very low income. This is not an equitable use of need-based funds. Is there any thought to looking at this further?
A. Yes. We advocate looking at the type of tax return filed and whether the filer used any schedules (other than the typical schedules A and B) to reduce income. If the AGI was reduced by losses that do not truly impact the amount of income available to the family, the eligibility determination would be based on a revised AGI that disallows the losses. That would be done systematically; it would not rely on use of PJ adjustments by the FAA.
Q. If a student does not file taxes (for example, when SSI benefits are the only income) how would eligibility be calculated?
A. Under our proposal, an individual who receives federal means-tested benefits such as SSI is automatically considered eligible for the maximum amount of grant aid. We would not require such individuals to go through additional need assessment. Similarly, we would consider an individual eligible for maximum aid if his or her income is too low to require filing an income tax return.
Q. Assuming that simplification of need analysis is adopted, there would no longer be an EFC calculation. To what extent will NASFAA assist schools and states in the development of a method to award their need-based funds?
A. NASFAA will undertake professional development and training as it always has. We believe that the income-to-poverty ratio method can be used to determine eligibility for most, if not all, forms of need-based aid. Watch for an NCI issue paper on this topic soon for more details.
Q. Would linking the tax return and the FAFSA eliminate the need for verification at the institution? Currently, we verify all federally selected students, plus 15 to 20 % of additional filers. My understanding is that the IRS only audits about 1% percent of filers. How do we insure accurate data without the verification process as we understand it today?
A. The current verification process in fact utilizes the tax return. Under the proposed system, if data is taken directly from the tax return, there is no reason to verify that data again. We would rely on the IRS system of internal checks for inconsistencies on the tax return, rather than an application-based system of edit checks.
Q. Are there any thoughts about how schools and states might deal with fewer data elements on the FAFSA when awarding institutional aid or state grants (and how the CSS/Financial Aid PROFILE might become more prominent)?
A. States or schools that need alternate or additional information might need to use a separate form. However, it is our hope that many could adopt a convergent simplified process as the federal system develops. In an electronic process, ED could use links to direct a FAFSA applicant to the appropriate state’s application site upon completion of the FAFSA.
What do you think about this proposal? How would you improve it?
