May 19, 2022
  • May 19, 2022

Unintended fallout from unemployment benefits: cuts in college financial aid

By on April 2, 2022 0

Unemployment benefits helped millions of people who lost their jobs during the pandemic, but now the payments may throw a wrench in the college financial aid process.

The disconnect between a pandemic relief program and colleges finding financial aid could lead to less aid for some applicants, student advocates say. Students from families who received unemployment benefits in 2020 — particularly if the family filed taxes in early 2021 — may want to check with college financial aid offices to make sure they receive the maximum amount.

Here’s what you need to know.

To qualify for financial aid, students and their families complete the Free Application for Federal Student Aid, known as the FAFSA. The form is the portal to federal Pell grants and need-based student loans, and states and colleges use it to assign their own aid.

The FAFSA for the 2022-23 academic year became available October 1 and uses financial information from the 2020 tax year, which is typically reported on tax returns filed in 2021.

Normally, unemployment benefits are considered income when calculating a student’s eligibility for financial aid. But as part of its pandemic relief effort, the federal government allowed Americans earning less than $150,000 to exclude unemployment benefits up to $10,200 per recipient from their 2020 taxable income. came into force on March 11, 2021 – after many people had already filed their 2020 tax returns and declared their unemployment benefits as income.

The Internal Revenue Service said it would automatically make corrections to people who had already filed tax returns and send refunds if needed. But the potential for confusion about the FAFSA persists, especially for first-time filers who also use the IRS data retrieval tool to complete the form.

The tool allows FAFSA filers to quickly transfer encrypted tax information into the online financial aid form, and the federal student aid office encourages students and families to use it. But the tool transfers the information from the original declarations. So data from first-time filers who didn’t claim the unemployment exemption won’t reflect the IRS’ adjusted lower income, said Kalman A. Chany, president of Campus Consultants, a financial aid consulting firm in Manhattan.

In a notice posted online in the fall, the federal office of student aid said early filers using the data tool for the FAFSA would have higher reported income, “which could potentially reduce their eligibility for need-based federal assistance”.

And, according to the notice, even people who filed their taxes after March 11, 2021, and excluded unemployment benefits from their income may still have reported their unemployment benefits as “untaxed income” on the FAFSA. – which could also reduce the potential aid. (Those affected are most likely applicants who filed their FAFSA in early October, before the Department of Education clarified that benefits should not be reported as untaxed income on the form, Chany said. )

In an updated ‘alert’ on February 24, the IRS warns FAFSA filers not to use the data tool if they have filed their 2020 tax return and have not excluded any unemployment benefits from their income .

“The concern is, are colleges looking at inflated revenue?” said Brendan Williams, senior director of counseling at uAspire, a nonprofit organization that seeks to reduce financial barriers to college.

It is not known how many students could be affected. Millions of people received unemployment benefits in 2020, but data is not readily available to calculate how many of them are also filing a FAFSA, said Kim Cook, chief executive of the National College Attainment Network, a nonprofit group. nonprofit that works on behalf of low-income and minority students.

The federal office of student aid has asked college financial aid administrators to address the issue if they become aware of it. But administrators may not be able to easily identify affected claims because they typically don’t see a family’s income breakdown, said Karen McCarthy, vice president of public policy and federal relations at the National Association. of Student Financial Aid Administrators.

Students may not be aware of the issue and won’t know to ask about it, Chany said. “Nobody pats them on the shoulder,” he added.

What should families do?

If they had unemployment earnings in 2020 and filed their taxes before March 11 of last year, they should contact their college’s financial aid office to discuss their concerns and have unemployment benefits removed. income unemployment on the FAFSA, said Mark Kantrowitz, a financial aid expert. . Documents like Form 1099-G, which the government uses to report unemployment income, or unemployment verification letters can help show that students or their families have received unemployment benefits.

Students should also be aware that the federal government has encouraged college financial aid offices to use their discretion – “professional judgment” in financial aid jargon – to take into account unique circumstances, including loss employment during the pandemic, to maximize a student’s financial situation. aid.

It’s also possible in some cases, Ms Cook said, that a family’s income was higher in 2020 than it is now due to increased unemployment benefits during the pandemic.

Students or families who received unemployment benefits in 2020 “may be surprised” to see Pell grants “much lower” than in previous years, according to a report by Bottom Line, a nonprofit group that helps low-income and first-generation students. going to college, and SwiftStudent, a free tool to help students file financial aid appeals.

“It’s not your imagination,” the report said.

Whatever the reason, students should notify financial aid offices if their circumstances have changed. “If the information on the FAFSA does not accurately reflect your current situation, contact your school,” Ms McCarthy said – the sooner the better.

Here are some questions and answers about the FAFSA and college aid:

That could be significant, Kantrowitz said. A $10,000 reduction in income on the FAFSA can mean a $3,000 to $5,000 reduction in a student’s expected financial contribution. It could also increase eligibility for need-based financial assistance.

No. It is always best to file the form as soon as possible after it becomes available each year, as states and colleges have varying priority deadlines. But the final deadline to file a FAFSA for the next academic year is June 30, 2023. (Students can file the form to apply for federal aid retroactively, but it generally must be filed and processed by the last day of their college term. , or June 30 – whichever comes first.)

The current pause on federal loan repayments is set to end on May 1. It’s unclear whether President Biden will be able to extend the freeze again, as he last did in December.