Unintended fall in unemployment benefits: College financial aid is declining

Unemployment benefits have helped millions of people who lost their jobs at Pandemic, but now payments could throw a wrench into the college financial aid process.

Student lawyers say the severance of ties between a pandemic relief program and colleges that find financial aid may result in less help for some applicants. Students from families who received unemployment benefits by 2020 – especially if the family files a tax return in early 2021 – may want to contact the college financial aid offices to make sure they are receiving the maximum amount.

Here are the things to know.

To qualify for financial aid, students and their families fill out a free application for Federal Student Aid, also known as FAFSA. This form is a portal for federal grant based PEL grants and student loans, which states and colleges use to provide their own assistance.

The FAFSA for the 2022-23 academic year became available on October 1, and uses financial information for the 2020 tax year commonly reported on tax returns submitted in 2021.

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

The Internal Revenue Service said it would automatically make corrections to people who have already filed tax returns and send refunds if necessary. But FAFSAs can be confusing, especially for early tax filers who use the IRS data retrieval tool to complete the form.

The tool allows FAFSA filers to quickly transfer encrypted tax information to an online financial aid form, and the Federal Student Aid Office encourages students and families to use it. But the device transmits information from the original returns. Therefore, data on early filers who do not claim unemployment benefits do not reflect low, IRS-corrected income, according to Kalyan A., president of Campus Consultants, a financial aid consulting firm based in Manhattan. Chani said.

In a statement posted online in the fall, the Federal Student Aid Office said early tax filers who used the data tool for the FAFSA would have higher reporting returns, “which would reduce their eligibility for assistance based on federal need.”

In addition, according to the notice, even people who file tax returns after March 11, 2021 and deduct unemployment benefits from their income may have reported their unemployment benefits to the FAFSA as “non-taxable income” – which would also reduce potential assistance. (Applicants who have already filed their FAFSA in early October, before the Department of Education clarifies that benefits should not be reported as tax-free income in the form, are most likely to be affected, Mr. Chani said.)

In an “Alert” updated on February 24, the IRS warns FAFSA filers not to use the data tool unless they file a 2020 tax return and deduct unemployment benefits from their income.

“The concern is: are colleges looking at inflated revenue?” Brendan Williams, senior consulting director at uAspire, a non – profit organization that works to reduce the college’s financial constraints.

It is not clear how many students may be affected. Millions of people will receive unemployment benefits by 2020, but data is not readily available to estimate how many of them will file FAFSA, said Kim Cook, chief executive of the National College Attendance Network, a non – profit group working for Lowa. -Income and minority students.

The Federal Student Aid Office has instructed college financial aid administrators to address the issue if it becomes noticeable. But administrators may not be able to easily identify affected applications because a family’s income decline is not common, said Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators.

Students may not know about this subject and do not know how to ask about it, Mr Chani said. “No one is tapping their shoulder,” he added.

What should families do?

Mark Controvitz, a financial aid expert, said that if they have unemployment income by 2020 and file a tax return before March 11 last year, they should contact their college finance office to discuss their concerns and remove unemployment benefits from their income at FAFSA. . Documents such as Form 1099-G used by the government to report unemployment income or letters of confirmation of unemployment can help show that students or their families have received unemployment benefits.

Students should also be aware that the Federal Government College has encouraged financial aid offices to use their discretion – “professional judgment” – in the language of financial aid to maximize a student’s financial gain in the face of special circumstances, including job loss in Pandemic. Help.

In some cases this is possible, Cook said, adding that a family’s income may be higher in 2020 than it is now because of extended 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 non-profit group that helps low-income and first-generation students join colleges and provide free tools to help students file non-financial aid appeals. SwiftStudent, an organization.

“This is not your imagination,” the report said.

Regardless of the cause, students should notify the Financial Aid Offices if their circumstances have changed. “If information about FAFSA does not accurately reflect your current situation, please contact your school,” McCarthy said – the sooner, the better.

Here are some questions and answers about FAFSA and college assistance:

That may be important, Mr. Controvitz said. A $ 10,000 reduction in FAFSA reduces the expected financial contribution of a student from $ 3,000 to $ 5,000. It will also increase the eligibility for financial assistance as needed.

I do not know. It is best to file as soon as possible after the form is available each year, as states and colleges have different priority timeframes. However, the deadline for filing FAFSA for the next academic year is June 30, 2023. (Students can file a Form to seek federal assistance in advance after the end of an academic year.)

The current deadline for federal loan payments will be lifted on May 1. It is unknown at this time what he will do after leaving the post.

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