Education Department relaxes financial aid process in the absence of IRS tool

The U.S. Education Department on Monday gave colleges flexibility in verifying applications for scholarships, grants and loans while an online tool used to apply for federal student aid is out of commission

Students filling out the Free Application for Federal Student Aid (FAFSA), the form the government and colleges use to determine financial aid, have relied on the Internal Revenue Service Data Retrieval Tool to upload tax-return information. But the IRS and Education Department disabled the tool in March after identity thieves tried to use personal information from it to file fraudulent tax returns.

Though applicants can fill out the paper FAFSA form or use the online version and manually enter tax data, student advocates worry that those options will lead to errors. And that could lead to students being asked to verify information with additional documents, a time-consuming process that could take them out of the running for aid awarded on a first-come, first-serve basis.

To avoid delays, Lynn Mahaffie, the acting assistant secretary for postsecondary education, issued a “Dear Colleague” letter Monday directing schools to consider a signed paper copy of the 2015 IRS tax return, in lieu of the IRS tool or a tax transcript.

She said colleges and universities are also no longer required to collect documentation obtained from the IRS or other tax authorities verifying that a family did not file a 2015 tax return. Applicants must still sign a statement certifying that their families were not required to file taxes two years ago or submit a copy of W2 forms as evidence. The guidance will affect the verification requirements for the 2016-2017 and 2017-2018 FAFSA cycles.

“These flexibilities are an important step toward making the process easier,” Education Secretary Betsy DeVos said in a statement. “We will continue to look for additional ways to ease the burdens created by the IRS DRT outage until the tool can be restored with added security measures in place later this year.”

Earlier this month, IRS Commissioner John Koskinen told members of the Senate Finance Committee that the information of up to 100,000 taxpayers may have been stolen in the security breach of the data retrieval tool. He told lawmakers that about 8,000 fraudulent refunds were issued, totaling $30 million, but the IRS prevented another 14,000 illegal refunds from going out the door and halted action on 52,000 other returns.

Members of Congress, universities and consumer groups have been critical of the IRS and Education Department’s handling of the suspension. The agencies waited a week after taking the tool offline to inform the public and offered little explanation. A coalition of financial aid administrators, admissions officers and guidance counselors said the department also ignored a petition to ease application demands that could lead to delays and backlogs for students during the outage.

Monday’s guidance does address some concerns outlined in that petition, said Justin Draeger, president of the National Association of Student Financial Aid Administrators (NASFAA), one of the groups involved.

“Financial aid offices from coast to coast are cheering these common-sense changes that will make it easier for students to complete the financial aid application and income verification requirements,” he said. “We are still interested in revisiting the methodology used by ED to select students for verification, but this is an excellent first step.”

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