Millions of Students Stranded by ED, IRS During FAFSA Filing Season

Last night, the Department of Education announced jointly with the IRS that it would likely not be able to get the Data Retrieval Tool (DRT), which allows students and borrowers to automatically import their tax information rather than painstakingly entering the information by hand to complete the FAFSA or re-enroll in income-driven repayment plans, back online until the fall.

The Data Retrieval Tool was unceremoniously pulled down by the IRS earlier this month over concerns about instances of fraud, without warning to institutions, counselors, or students and families. But yesterday, the Department increased the projected time for a fix from a few weeks to--six months. That’s bound to present some problems for millions of students--especially adult students, those enrolled in certificate or associate degree programs, and low-income borrowers--who have yet to finish their financial aid applications for the current cycle or complete their income-based repayment enrollment.

It’s tough to know exactly how many students will be affected. For the first time in the ongoing application cycle, which began October 1, 2016 and runs through June 2018, students can enter their tax information from two years prior instead of just the year before, allowing students to shift their FAFSA applications earlier in the year. That means the most recently available data are missing an extra quarter of filing time. But judging from the data we do have available, there’s still a lot of room for disruption between now and October 2017, when the Department hopes to have the tool back up and running.

In the 2015-16 application cycle, which ran from January 2015 through June 2016, FAFSA filings were far from done by this point in the cycle. From April through June 2015 (which offers the most recently available data that align with the upcoming quarter in the current application cycle, April through June 2017), more than 5 million students filed applications; another 3.5 million filed applications in the next quarter, running through September. Over those six months, 58 percent were first-time filings--students filling out their applications to enter college for their first year of classes--and over a third used the Data Retrieval Tool to pull over their tax information automatically.

Moreover, while high-schoolers are on pace to submit most of the FAFSAs that are expected from them relatively soon, many students enrolling in community colleges and adult students may be less likely to file early. More than two in five applicants who filed during those six months for 2015-16 said they were pursuing a certificate or associate degree--those most likely to be working to renew their skills to find a job, as opposed to traditional students. In fact, almost half of all filers during that time were adults aged at least 25.

The good news is that, because of the shift to opening the FAFSA earlier in the year, more students are likely to have already filed their FAFSAs. In October 2016, the Department said nearly 2.2 million FAFSAs had already been filed for the 2016-17 application cycle--meaning that a quarter of the number of FAFSAs filed in the entire first quarter of 2015 were filed in that single first month. But usage of the Data Retrieval Tool also spiked, with 56 percent of all filers in that month relying on it (up 10 percentage points from the six months in the 2015-16 cycle). If those figures hold true throughout the rest of this year’s applications, millions of students could still be affected by the IRS and Education Department’s decision not to resolve the issue before the next application cycle.

FAFSA Applications, April-September 2016 (2015-16 FAFSA Cycle)

Having to enter the information might sound simple, but entering the information by hand can mean big differences for students--hardly, as IRS Commissioner John Koskinen asserted in yesterday’s press release, just a “convenience.” For starters, the average time to completion for those who didn’t use the Data Retrieval Tool runs at more than a half-hour; for those who use the DRT, it can be much shorter.

Moreover, many state financial aid application deadlines are looming, so those who can’t complete the FAFSA in time could lose out on additional dollars. And for those who hand-enter their tax information, especially low-income students who look to be eligible to receive Federal Pell Grants, there’s a greater chance they’ll be selected for verification--a sometimes-onerous process for students and institutions alike, in which the school must confirm all the information by examining additional documentation. Errors in income are one of the main sources of improper payments in the federal student aid program, so it’s a critical protection for taxpayers as well as students. Those kinds of hurdles can leave taxpayers at a disadvantage, place new burdens on institutions, and complicate the process of administering aid for schools and states. But they can also be a substantial deterrent to enrolling for students, especially low-income students enrolling mid-cycle. Leaving the DRT down for so long means writing off many of those in the entire 2017-18 cohort of applicants altogether.

The Data Retrieval Tool doesn’t just help FAFSA filers; it’s also the primary route for those enrolled in income-driven repayment to recertify their incomes, which they must do annually or risk their payments spiking. And unlike the FAFSA application cycle, IDR recertification doesn’t necessarily follow the same patterns and downticks in filing; borrowers recertify once a year, and they may switch in and out of plans at different times during the year. So for the nearly 6 million borrowers enrolled in IDR plans today (about 60 percent of whom submit electronic applications), or others who may want to enter those plans during the year, the process of certifying income to learn their payment amounts just got a lot more manual and significantly more challenging.

For more on FAFSA filings and usage of the Data Retrieval Tool, check out this research from Nicholas Hillman at the University of Wisconsin-Madison and this post from Robert Kelchen of Seton Hall University.