What Documentation can a College Financial Aid Administrator Request?

What Documentation can a College Financial Aid Administrator Request?

I’m an independent student who filed a 1040A last year so I was not

required to answer questions about assets on the FAFSA application. I

had very little income last year and have a zero EFC. I reported taxes

on capital gains and now my school is asking for information about my

investment assets (which are about $40,000). Can they use this to

lower my federal grant amount? I guess they can use whatever rules

they want about their own grants, but I want to be sure that this will

not impact my eligibility for Pell Grants.

— Ethan G.

Federal law and regulations grant college financial aid administrators

the authority to request information and documentation from financial

aid applicants. Assuming that the information reported on the

financial aid application is accurate and that there is no unreported

income, this is unlikely to affect eligibility for federal student

aid. It may affect eligibility for the college’s own grant funds,

depending on the college’s policies.

The college is asking for more information as part of a process called

verification. Verification is designed to detect and resolve

errors and discrepancies on the Free Application for Federal Student

Aid (FAFSA). Previously up to 30 percent of all FAFSAs were selected

by the US Department of Education for verification. College financial

aid staff can select additional FAFSAs for verification at their

discretion. Some colleges even select all FAFSAs for verification.

The US Department of Education is transitioning to a targeted

verification system where specific data elements on the FAFSA are

selected for verification based on a risk model. There will no longer

be a minimum or maximum number of FAFSAs selected for

verification. College financial aid administrators can continue to

choose to verify additional FAFSAs, even every FAFSA.

There are several possible reasons why your FAFSA may have been

selected for verification. FAFSAs are often selected for verification

when there is an apparent discrepancy involving income and assets. For

example, a potential discrepancy arises when capital gains,

interest and dividends are reported on the federal income tax return

but no assets are reported on the FAFSA. FAFSAs can also be selected

for verification when the applicant appears to have insufficient

income to pay for basic living expenses. These FAFSAs are selected for

verification because of the likelihood of unreported assets and

income.

The mismatch between capital gains on the federal income tax return

and the lack of assets on the FAFSA may have been caused by the

simplified needs test.

The simplified needs test causes assets to be disregarded on the

FAFSA. To qualify for the simplified needs test, the income reported

by the student and the student’s spouse (if the student is

independent) or the student’s parents (if the student is dependent)

must be less than $50,000. Income is based on adjusted gross income

for tax filers and earned income for those not required to file a

federal income tax return. In addition, they must each have filed or

been eligible to file an IRS Form 1040A or 1040EZ (or were not

required to file an income tax return), or one of them must have been

a dislocated worker, or someone in the household size must have

received certain federal means-tested benefits during the past two

years (e.g., SSI, Food Stamps, Free and Reduced Price School Lunch,

TANF, WIC).

This apparent discrepancy can be explained by the simplified needs

test, since the applicant is not required to report assets. Often the

models that trigger verification look for simplistic mismatches, such

as an amount of assets reported that seems inconsistent with the

capital gains and interest/dividend income reported on the income tax

return. This also potentially explains the lack of income, since an

applicant with assets can survive off of the assets and student aid

funds.

Authority to Request Documentation

Regardless of the reason for selecting a FAFSA for verification, the

college has the absolute authority to request such documentation as they

see fit in connection with the FAFSA. If a student or parent refuses

to provide this documentation, the student will be denied financial

aid.

The authority to request documentation comes from multiple

sources. First, the signing statement on the FAFSA provides this authority:

If you are the parent or the student, by signing this application you

certify that all of the information you provided is true and complete

to the best of your knowledge and you agree, if asked, to provide

information that will verify the accuracy of your completed form. This

information may include U.S. or state income tax forms that you filed

or are required to file. Also, you certify that you understand that

the Secretary of Education has the authority to verify information

reported on this application with the Internal Revenue Service and

other federal agencies.

Section 479A(a) of the Higher Education Act of 1965 also grants the

college financial aid administrator the authority to request documentation.

In addition, nothing in this title shall be interpreted as limiting

the authority of the student financial aid administrator in such cases

to request and use supplementary information about the financial

status or personal circumstances of eligible applicants in selecting

recipients and determining the amount of awards under this title.

The regulations also grant authority to the college financial aid

administrator to request documentation. For example, the regulations

at 34 CFR 668.51(b) states “Applicant responsibility. If the Secretary

or the institution requests documents or information from an applicant

under this subpart, the applicant shall provide the specified

documents or information.” The regulations at 34 CFR 668.54(a)(5)

also state that “An institution or the Secretary may require an

applicant to verify any data elements that the institution or the

Secretary specifies.”

The college financial aid administrator is

required to request documentation if he or she believes that the

information reported on the FAFSA is inaccurate. For example, the

regulations at 34 CFR 668.54(a)(3) state “If an institution has

reason to believe that any information on an application used to

calculate an EFC is inaccurate, it shall require the applicant to

verify the information that it has reason to believe is inaccurate.”

The regulations at 34 CFR 668.16(f) require colleges to have an

adequate system for identifying and resolving discrepancies in all the

information available to the college about a financial aid applicant,

including discrepancies between the income tax returns and the FAFSA.

If the application fails to provide the documentation within a

reasonable time period as specified by the college, the regulations at

34 CFR 668.60(b)(1) and 34 CFR 668.60(c)(2) prohibit the college from

disbursing any further federal student aid to the student, including

grants, loans and student employment. The student will also be

required to repay any federal student aid already disbursed. The

regulations at 34 CFR 668.60(d) also preclude processing any

subsequent year’s FAFSAs until the applicant provides the requested

documentation.

Source: Fastweb

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