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New blog post: Streamlining the financial aid process: Will it work? #admissions #highered #financialaid

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In recent years we’ve seen increased emphasis on transparency in and streamlining of the financial aid process. It is a complex process as Secretary of Education Arne Duncan conveyed when we declared when discussing the FAFSA, that “you basically need a Ph.D. to fill that thing out.”

I understand the sentiment expressed by Secretary Duncan and am sympathetic to families who struggle with this process each year. As an enrollment professional, I am also sympathetic to my financial aid colleagues who continue to wrestle with these changes.

I do think hope is on the way, but not without some work on everyone’s part.

The feds efforts began this simplification and transparency effort with the mandate for colleges to develop Net-Price Calculators to help families understand bottom-line cost. While the jury is still out on how well this will work, it’s inarguable that this is a symbolic step in the right direction. Another effort to help is the recently announced effort by the Consumer Protection Agency to explore standardization of a financial aid award letter; another well-intentioned idea, like the Net-Price Calculator, that may or may not work.

Perhaps the effort with the greatest potential is the IRS Data-Retrieval System, which allows a FAFSA filer to pull specific data from IRS tax returns to populate the FAFSA. This step alone should enable those of us who have not earned a Ph.D to be more adept at the process since we are already filing taxes!

Last year the IRS Data-Retrieval System was piloted and allowed FAFSA filers to securely link the FAFSA with federal tax information through the IRS. The intent is to streamline both the financial aid application and verification processes and to provide greater accuracy of data. In addition, the IRS Data Retrieval system should eliminate the need for families to submit tax returns and W-2’s, both a staple of the financial aid application and verification process.

However, this “improvement” has not received a great deal of attention; yet, its impact is significant.  Families, colleges and the federal government need to take appropriate action to make sure the enhancement actually helps families. Below are some suggestions about what colleges, the feds and families need to do to make this effort work for everyone.

Colleges and universities will need to do the following:

Resist the urge to develop a new information gathering-tool—Any time an initiative like this is introduced the first reaction on the part of colleges is to simply gather the information in an alternative manner or to turn to an alternative system. We must resist this urge and instead partner with the Department of Education to improve the effectiveness of this effort for families and for our institutions. Wouldn’t you prefer to work to improve the system then develop your own?

Quit asking for items that are no longer necessary—Colleges must also quit asking for items no longer necessary to offer a student a financial aid award. Those colleges that maintain the process of requiring tax returns, W-2’s, etc. will further confuse families and will create more aggravation in the marketplace and for themselves. If we continue to ask for stuff we don’t need while others don’t ask we will just outrage families further and this effort will backfire. Do you really need everything you think you need?

Communicate clearly what is expected of a student/family—I’ve have discovered some very good examples of colleges that have been proactive in communicating about this change and expectations for students and families; but many are late to the game, which was evident when the financial aid staff at Augustana College called regional and peer colleges to ask what they were doing about this change. I know we have a long way to go to effectively communicate with our families and I suspect others do, too. Have you clearly outlined the sequence families should follow in submitting taxes and the FAFSA? Have you described the benefits of applying early and online to families?

Become increasingly comfortable with estimated financial aid awards—Because many of us will still want most students to make their choice by May 1 and there is a high likelihood that there will be some further kinks to work out of the system, we have to become more comfortable with estimated financial aid awards. While I know many have been sending estimated awards for many years, there are still some of who like to have virtually everything verified before awarding aid. With this new system the days of verifying and the awarding are long gone and we all must become more comfortable with estimated aid packages. (If we are to be good stewards of our institution’s resources we also need to be more disciplined in our messages about estimated aid packages and how verified data may change the estimated aid package. If we don’t and we choose to honor our estimate, we run the risk over-spending financial assistance).

The federal government will need to do the following:

Ensure speedy processing (even during peak times)—Because filing taxes and the FAFSA occur during the same time frame and many students are expected to make a college choice by May 1, the federal government needs to be sensitive to the need to process tax returns and FAFSA in a timely manner without fail. Furthermore, since it’s been estimated that taxes need to be filed two weeks in advance of the FAFSA for the systems to link successfully that estimate of two weeks better really be two weeks, rather than three or four.

View colleges as partners—One cannot help but think that the “improvements” to the process were introduced, in part, to fix a problem. But, for many families the process has worked very well and it is because colleges have worked hard to develop fair, equitable and good practices for awarding aid and stewarding college resources. The only way the IRS Data Retrieval System will work is if the Department of Education listens to its partners and higher education and respond when constructive feedback is offered.

Students and parents applying for financial assistance will need to do the following:

File taxes as early as possible and file online—I don’t know how to say it any better…families must files taxes as early as possible. The longer they delay or wait the worse for everyone involved. This coordinated effort between the Department of Education and the IRS creates a new timeline that adds two weeks the process for a family. For all those fathers who want to wait to file until the last minute, don’t! File early so the coordinated system can work.

Submit the FAFSA as early as possible, but not too early—In order for this system to work most effectively, a family should submit the FAFSA approximately two weeks after filing taxes. This is new wrinkle in the process and while estimated data for the FAFSA is still possible with updates after taxes are filed, the system will work better is families file taxes, followed by the FAFSA. The accuracy of the data and the integrity of the financial aid award will be better if families follow the proper sequence.

Give the federal government and colleges the necessary time to be accurate—Families need to do their part by committing to the timely submission of information necessary to determine eligibility for financial assistance. They also need to be patient. With the introduction of a new player (The IRS) and a new timeline (two weeks), families cannot expect on-the-spot decisions from colleges. Families need to adjust their expectations and need to work within the necessary timeframe, rather than the timeline they’ve established.

One fix that is absolutely critical

I do believe this will add to transparency and will streamline a complex process, but one fix that is critically important is the potential for the IRS Data Retrieval System to over-estimate income because the taxes include taxable and non-taxable income. This must be addresses as quickly as possible or we run the risk of under-estimating eligibility for financial assistance, which will negatively impact families. If this fix is not addressed, colleges will continue to ask for unnecessary items in an effort to be fair and equitable, rather than in an effort to confuse and complicate.

Bumps, but great progress

There will no doubt be some bumps along the way, including the rumor that tax transcripts and the Data Retrieval Tool won’t be available until you satisfy your tax bill, which I investigated myself. This particular rumor led me to voluntarily call the IRS to debunk it. Twenty minutes on hold followed by a very helpful IRS representative resolved my questions.

I applaud this effort (even if I am bit suspicious about the motives) and believe the IRS Data Retrieval System will improve the financial application and verification process. But, it will only work if everyone—college, the federal government and families do their part to make it work.

W. Kent Barnds @bowtieadmission

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2 Comments

  1. Kent, This is an excellent post, with great points and recommendations for all the parties involved in the process. Thank you!
    One response to the instructions for parents — while it may streamline and improve the process for parents to file taxes prior to the FAFSA, the current tax reporting system simply does not allow that. Everyone involved in this process recommends filing the FAFSA as soon as possible after January 1. Tax related documents (W-2s, 1099s, etc.) are supposed to be sent by the end of January, but with tax code changes (every year?), the reporting companies get extensions.
    We prepared a draft tax return so we had the necessary info for the FAFSA (and filed it Feb 1st), but our official 1099s needed for the signed return weren’t available until mid-February. Had we waited until we could complete our return we would have been filing the FAFSA Feb 25th.
    I don’t see a way around filing an estimated FAFSA and updating it once the taxes have been filed, but I am very willing to listen to any recommendations! Thanks again.

    • bowtieadmission says:

      Thanks for the feedback. For the most part, I agree with you about the timing issues that this “new and improved” system presents. Furthermore, I have always been an advocate for completing the FAFSA using estimated data, particularly when colleges have financial aid deadline earlier than March 15. However, I also think it is important the manage expectations and reinforce the idea that there is a very real possibility that eligibility for assistance for aid might (or will) change based on tax information. My experience suggests that many families–particularly those who are less familiar with the system don’t always understand this and then feel like “we’ve move the hurdle.” Your point is an excellent point and filing estimated taxes to meet deadline is good advice. But, colleges and families must understand that “it ain’t official, until it’s official.” I will note that the IRS Data-retrieval system is causing some bumps this year for families and for us. It’s not a seamless as it needs to be, but I remain hopeful.

      Again, I appreciate your feedback.

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