Federal Town Hall Focuses Primarily on Prior-Prior Year and Verification

Department of Education (ED) officials addressed several issues that were raised by the financial aid community during a Federal Town Hall at the 2016 NASFAA National Conference, most of which were related to the use of prior-prior year (PPY) income, verification, and conflicting information for 2017-18. The following are some highlights from that back-and-forth with ED officials.

Effective with 2017-18, the Central Processing System (CPS) will compare the last 2016-17 Institutional Student Information Record (ISIR) transaction with the 2017-18 FAFSA data to determine if there is a significant difference between the two award years. If the difference is significant enough, the 2017-18 ISIR will contain comment code 399 which will require resolution by the school for one or both award years. Refer to the Today’s News article "2017-18 Verification and Conflicting Information" for more information. ED will soon be releasing a Dear Colleague Letter providing further details on when the resolution of conflicting information will be required and under which circumstances aid will need to be returned by the student. Don’t expect ED to define what a “significant difference” means, though.

ED’s statistical analysis historically results in around 30 percent of all applications being selected for verification. However, if enough individuals use the IRS Data Retrieval Tool (IRS DRT) with the implementation of PPY, the percentage could drop below 30 percent. ED is not making any promises.

Most individuals who filed a tax extension for the 2015 tax year will have filed taxes by October 1, 2016, when the use of PPY starts for the 2017-18 award year, so there should be fewer verifications based on tax extension documentation. Tax extensions will still be allowed and the current tax extension verification requirements will remain in effect for 2017-18. In addition, any tax filer who requested a tax extension but has not yet filed a tax return will also have to provide an IRS Verification of Nonfiling Letter dated on or after October 1, 2016.

Beginning in 2017-18, an IRS Verification of Nonfiling Letter will be required anytime a nontax filer or a tax filer who received a tax extension but who has not yet filed a tax return is subject to verification under Verification Tracking Groups V1 or V5. See GEN-16-07. Unfortunately, historical data reveals that a high percentage of individuals who indicated they did not file a tax return actually did file a tax return, so ED feels the Verification of Nonfiling Letter is necessary. Currently, this is not something that can be checked via the IRS Data Retrieval process, but ED is looking into a better way to do this for 2018-19 and beyond.

Since a nonresident alien parent or spouse may not have a Social Security Number or an Individual Taxpayer Identification Number (ITIN), it is unclear how the individual would be able to obtain a Verification of Nonfiling Letter from the IRS. ED will look into this and provide additional guidance to the community as soon as possible.

Schools should not send students or parents to local IRS offices to obtain tax transcripts. Those individuals should request Tax Return Transcripts using the IRS Get Transcript website (delivered online or by mail), or they should request tax transcripts by mailing IRS Form 4506-T to the IRS.

There is currently no way to eliminate just the student from verification if his or her income is lower than the income protection allowance (IPA), which would automatically result in a zero student contribution, but ED will look into it.

Even though the implementation of early FAFSA and PPY bumps up against the FISAP filing deadline of September 30, 2016, there is currently no way for ED to change the FISAP deadline or to automatically complete FISAP on behalf of schools. Some FISAP data is statutory and ED does not currently collect all the data necessary to complete the FISAP on behalf of schools.

Publication Date: 7/29/2016