NASFAA’s Reauthorization Task Force Recommends Changes To Need Analysis, Part 2
Late in March, a task force of 17 NASFAA members forwarded to NASFAA’s Board of Directors an initial list of 61 recommendations for changes to the Higher Education Act (HEA) via the upcoming reauthorization. The Board accepted most of those recommendations, although it requested that some be further developed. This article is the ninth and final in a series highlighting the accepted recommendations, and the second dealing with need analysis. NASFAA members are encouraged to suggest additional areas where legislative change is needed. For comprehensive coverage of all reauthorization topics, please refer to NASFAA’s HEA Reauthorization Web Center.
IRS/FAFSA Data Exchange
The Reauthorization Task Force (RTF) recommends that Congress direct the Department of Education (ED) to continue to expand and refine the IRS/FAFSA data exchange process to include all current FAFSA data elements that can be obtained from the federal tax return, to support a more robust FM need analysis formula (e.g. interest/dividend income, IRS distributions, social security income, certain forms of untaxed income, etc.).
Utilize the 1040 as the Federal Student Financial Aid Application
The Reauthorization Task Force (RTF) recommends that Congress direct ED to perform a feasibility study with the IRS to develop a process in which the tax return is the primary federal financial aid application vehicle. Conforming amendments to both the HEA and the tax code would be necessary.
Currently most of the financial data used to complete the FAFSA comes from the tax return. The IRS data retrieval tool (IRS-DRT) provides direct population of those items, and ED is moving significantly towards mandatory use through the verification process. However, filing a FAFSA is still a separate process from filing the tax return and requires the student and family to initiate the student aid process on an entirely different website. The aid application process could be merged with the tax return process by providing a financial aid application section on or with the 1040 as an option for applying for federal student aid. This could eliminate the FAFSA application for students and parents who file tax returns.
Single Methodology and Application Limits Use of FAFSA Data by States and Institutions
The vast majority—at least 98 percent according to recent public statements by ED—of Title IV aid applicants file for federal financial aid electronically via FAFSA on the Web (FOTW). FOTW is a multi-form financial aid application process—while in the FOTW session, an applicant can initiate a second session at the IRS website. The IRS-DRT illustrates how technology can be leveraged to help simplify the financial aid application process for students and their parents. Today it is more appropriate to think about the aid application process as a series of concurrent on-line sessions instead of physically distinct application forms.
The RTF believes that Congress should encourage ED to engage stakeholders as well as technology experts in discussions to explore ways the IRS-DRT model could be extended to other Federal agencies, States and institutions. Statutory changes should allow the sharing of data collected on the FAFSA with third parties and should establish within the HEA an appropriate framework for an aid application process that is characterized by on-line activity between the applicant and a variety of aid providers including the Federal government, states and institutions—a “one-stop” financial aid application process. In particular, Congress should ensure that the Department is able to utilize existing, emerging, and future technologies to simplify and streamline the process for applying for financial aid, irrespective of the source of that aid.
Congress should not be overly prescriptive with regard to the financial aid application process. Rather, Congress should provide the ED with flexibility to execute Congress’ policy objectives in a manner that optimizes the efficient and effective use of technology.
Treatment of Unmarried Partners or Same Sex Couples
On April 29, 2013, the Department of Education (ED) announced a change in the way it views unmarried parents of dependent students for the purpose of completing the FAFSA. Beginning with the 2014-15 award year, income and other information from both of a student’s legal parents will have to be provided on the FAFSA if those parents live together, regardless of marital status or gender. Legal parents are defined as biological or adoptive parents. This approach reflects a policy change that considers the parent’s relationship to the student, rather than the parents’ relationship to each other. ED constructed this approach under the constraints of the Defense of Marriage Act (DOMA). Since then, in June, the U.S. Supreme Court ruled that DOMA is unconstitutional.
Meanwhile, the Reauthorization Task Force (RTF) proposed a recommendation that takes the issue further. The RTF believes that an amendment to Title IV of the HEA should state that, notwithstanding any other Federal law, both the parent of a dependent student and that parent’s partner, regardless of gender, should be treated the same as opposite-sex married couples. Since the stepparent in an opposite-sex marriage does not have to adopt the applicant, neither should the stepparent in a same-sex couple. Students in a state-sanctioned same-sex marriage or other state-recognized domestic arrangement, should also be treated the same as an opposite-sex married couple.
The RTF seeks to recognize the reality of current living situations, and to assess family financial strength more accurately. For parents of dependent students, all unmarried partners, regardless of gender or state laws, would be treated the same as married couples. Unmarried students with partners would have to be treated the same as married couples if they have gone through some formal commitment process sanctioned by a state; this includes considering otherwise dependent students as independent by virtue of marriage. If a student has not gone through a state-sanctioned process, aid administrators could consider professional judgment actions to override dependency and/or make other adjustments.
According to the Williams Institute (UCLA School of Law)), based on the U.S. Census, there are nearly 650,000 same-sex couples in the United States, of which approximately 114,100 are legally married and over 108,600 are in civil unions or registered domestic partnerships. As of 2011, about one in five same-sex couples are raising children under age 18.
According to the National Council of State Legislatures, twelve states (Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington) plus the District of Columbia allow same-sex marriages as of May 2013. An additional four states allow civil unions that afford all state-level spousal rights to same-sex couples. Several other states grant varying degrees of state-level spousal rights to unmarried couples in domestic partnerships.
Household Size—Definition of Dependents
The Federal Methodology currently allows children to be counted in household size as long as they live with the applicant’s parents and the parents provide more than 50% support. Thus, children who are receiving Title IV aid as independent students and older non-student children, regardless of employment status, can be counted in the parent’s household size for a dependent sibling, if the parents claim they provide more than half support. The support test also applies to other individuals living in the household, but there is no rule of thumb regarding determination of half support.
The RTF believes that the determination of “dependent” should be more standardized and verifiable. The RTF also believes that children who are receiving financial aid as independent students should not be counted in the household size used to determine aid for other children who are dependent. With regard to siblings who are not students, especially adult children, there should be a defined cut-off point for the expectation that those siblings can still increase the size of the parents’ household with regard to aid determinations for dependent applicants.
The RTF recommends using IRS definitions of who can be claimed on a tax return to determine household size to tighten the rules, and provide more consistency, surrounding the definition of dependents for household size purposes. The IRS test to claim an individual as an exemption provides a more defined approach to assessing what constitutes half support. This recommendation will also open another avenue for verification through the IRS data retrieval tool.
Under IRS rules, a child aged 24 or over (whether or not a student, and whether or not living with the parents) could be claimed as an exemption on the tax return and therefore still be included in household size, if that child has gross income under $3,800 and the parents provide more than half of his or her support. (Gross income includes certain scholarship and fellowship grants. Scholarships and fellowships received by degree candidates and used for tuition, fees, supplies, books, and equipment required for particular courses generally are not included in gross income.) IRS Publication 17 gives detailed information on who can be claimed.
As is currently the case, an aid administrator could adjust household size under professional judgment. For example, a grandparent may be supported by the applicant’s parents (whether living in the parents’ home or in some other facility) but due to the gross income test, the parent may not be able to claim the grandparent as a dependent on the tax return. An older sibling who does not meet the IRS tests could nevertheless be included in the household if deemed appropriate by the FAA, but the reasons for that sibling’s continued dependence on the parents would have to be documented and would have to be differentiated by special circumstances from other families with older children still in the home (these are currently the general principles of professional judgment). Accordingly, the RTF would add to the statutory examples of allowable professional judgment the ability to adjust household size to include individuals who were not, or could not be, claimed on the tax return if the aid administrator determines that it would be appropriate to do so.
The RTF also seeks to ensure that, for divorced parents, a dependent sibling who lives in the household of the applicant’s custodial parent could not also be counted in the other parent’s household under the “other individual” category.
The RTF recommends defining household size for a dependent student to include:
- The student;
- The student’s parent(s);
- Children who can answer “no” to all of the dependency questions (i.e., children under the age of 24 who do not otherwise meet the Title IV definition of independent), if they live in the household;
- Other individuals who were claimed by the parent(s) on the base year income tax return (exclusive of children who would be dependent under Title IV but who do not live in the household);
- Other individuals for whom the aid administrator makes a documented decision that, due to unusual circumstances, inclusion in household size is appropriate.
The equivalent changes would be made for an independent student’s household size.
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