Michele Streeter, TICAS
Rachel Gentry, NASFAA
Raymond AlQaisi, NCAN
President Donald Trump on Thursday signed into law the FUTURE Act, an important piece of bipartisan legislation that will make significant improvements to the federal financial aid system.
In addition to providing much-needed permanent funding for Historically Black Colleges and Universities and other Minority-Serving Institutions, the bill makes it much easier for students and families to apply for federal financial aid and for student loan borrowers to access affordable student loan repayment options. The bill will also significantly improve program integrity and reduce administrative burden for students and families, schools, and the federal government.
The bill achieves these policy goals by amending Section 6103 of the Internal Revenue Code to allow the IRS to share taxpayer data directly with the Department of Education (ED). This fix will streamline the FAFSA-filing process by allowing an individual to have their income data directly imported into the form rather than requiring them to manually import the information in a cumbersome, multi-step process.
This direct data sharing will also reduce the need for FAFSA verification, an audit-like process that disproportionately impacts low-income students, and will significantly reduce improper payments.
The bill’s passage into law marks the end of a years-long effort from a broad and diverse group of policymakers and other stakeholders. Our three organizations — The Institute for College Access & Success (TICAS), the National Association of Student Financial Aid Administrators (NASFAA), and the National College Access Network (NCAN) — have worked alongside numerous other advocates to champion these proposals for many years.
Below, we outline how this bill will make life easier for millions of students and families.
The Problem: Students still face a complex process in filing the FAFSA to apply for federal financial aid. On top of the FAFSA, many students must additionally complete the burdensome, audit-like process of verification before receiving the aid for which they qualify.
What the FUTURE Act Does: Simplifies (and improves the accuracy of) the financial aid application process for millions of current and future students by reducing the number of FAFSA questions by 20 percent; the bill also lays the groundwork for further FAFSA streamlining.
About 43 percent of high school seniors did not complete a FAFSA during the 2019-20 cycle, and the high school class of 2018 missed out on $2.6 billion in federal Pell Grants alone. With these students less likely to enroll in postsecondary education without financial aid, it remains clear that FAFSA completion continues to be a significant barrier to college access for today’s students.
Fortunately, the data sharing enabled by the FUTURE Act will have a dramatic positive effect on FAFSA completion. The Senate HELP Committee estimates this change will simplify the financial aid application process for some 20 million American families.
Specifically, the FUTURE Act improves the FAFSA filing process by addressing the existing shortcomings of the IRS Data Retrieval Tool (DRT).
There are currently categories of FAFSA filers — including married couples filing separately, those who filed as head of household, and those who did not file taxes — who cannot use the DRT.
The FUTURE Act allows students currently unable to use the DRT, including both non-tax-filers and tax filers of all filing statuses, to experience a simpler FAFSA process by transferring their data directly from the IRS to ED.
While it will likely take longer to implement the direct data sharing for some categories of tax filers because of logistical and technological challenges, non-tax-filers will be among the first to benefit. This will be particularly helpful, since non-tax-filers currently selected for verification must go through an arduous process of requesting separate documentation from the IRS to confirm to their school that they did not file taxes.
The FUTURE Act helps more than just those students currently unable to use the DRT. The data-sharing provisions simplify the aid application process for all students by eliminating up to 22 questions from the FAFSA.
The bill allows for the direct sharing of all items currently transferred via the DRT, as well as the taxpayer’s filing status, whether they filed a lettered tax schedule, and whether the individual(s) had filed taxes. By decreasing the need for applicants to enter income information manually on the FAFSA, direct data sharing both reduces the chance that erroneous information is submitted as a result of human error and shortens the amount of time needed to complete the form. This maintains the integrity of federal aid programs without imposing significant burden on students and aid administrators.
In addition to improving the financial aid application process, the FUTURE Act is expected to greatly reduce the burden placed on financial aid applicants who must complete the complicated, audit-like process of FAFSA verification, which in its current form has been shown to have little impact on most aid offers.
Data suggests that verification burden has a particularly significant impact on low-income students, with half of Pell-eligible FAFSA filers selected for verification each year, and Pell-eligible students making up about 98 percent of all students selected. For a variety of reasons, many students never complete the verification process and, consequently, never receive the aid they need to enroll. For the 2016-17 academic year, 25 percent of potentially Pell-eligible students ultimately did not receive federal aid, a rate that has increased by a few percentage points each year over the past two cycles.
The FUTURE Act addresses this troubling problem, known as verification melt, because the tax information ED receives from a student’s FAFSA will now come directly from the IRS and thus will already be considered verified data. This should lead to a reduction in applications selected for verification, and a corresponding reduction in the associated burden experienced by students and institutions.
The Problem: Bureaucratic barriers make it difficult for borrowers to enroll in — and stay enrolled in — a loan repayment plan where monthly payments are based on income.
What the FUTURE Act Does: Makes it much easier for borrowers to stay enrolled in an income-driven repayment plan by allowing secure, automated data sharing between federal agencies.
Over eight million borrowers currently benefit from income-driven repayment (IDR) plans, which base monthly student loan payments on an individual’s income and family size. By keeping monthly payments more affordable, IDR is a critical safety net for struggling borrowers that reduces the risk of delinquency and default.
However, to stay enrolled in an IDR plan from year to year, borrowers are required to proactively complete an annual process to manually re-certify their income and family size information, which ED uses to determine their eligibility for IDR and their monthly payment amount. If a borrower doesn’t recertify their information on time, their monthly payment amount is no longer based on income, and can spike dramatically.
For example, a single borrower with $30,000 in debt and an income of $35,000 would owe $141 per month on an income-driven plan but would owe $345 a month — more than twice as much — if they missed the income recertification deadline.
Unsurprisingly, this spike in monthly payment amounts can cause financial distress that increases a borrower’s risk of delinquency and default. Over time, this bureaucratic hurdle has tripped up millions of borrowers and led many to fall into hardship-related forbearance or deferment.
Missing the recertification deadline also causes any unpaid interest that has accrued on the loan to be added to the loan principal, on which new interest is calculated going forward. This interest capitalization increases the total cost of the loan.
The FUTURE Act takes major strides to solve this problem by allowing borrowers to give ED permission to automatically access certain limited tax information for the purpose of determining their eligibility for an income-driven repayment plan, as well as their monthly payment amount. This improved data sharing will also help to facilitate the discharge of loans for borrowers with severe disabilities.
Importantly, borrowers must give active consent for this information to be shared, and are able to revoke this permission at any time. However, borrowers are only required to give permission once — striking an important balance between ease of access and strong data security and protection.
Publication Date: 12/19/2019