Millions of Americans signed up for unemployment benefits to make ends meet when the pandemic shuttered the global economy in 2020. Congress responded by passing critical relief legislation that, among many other things, suspended the normal rules of what counts as taxable income. During the upheaval, thousands of people decided to enroll in college or some other postsecondary education program to gain new skills or make a career change.
Now, more than two years later, recipients of those unemployment benefits could unknowingly receive less aid than they deserve because of the way the government processes the Free Application for Federal Student Aid, commonly called the FAFSA.
If you or your parents received jobless benefits in 2020 and you filed a FAFSA for the upcoming school year, you may qualify for more money than what the government tells you.
What You Need to Know
The FAFSA uses tax data that is two years old, known as “prior prior year” tax data, to calculate eligibility for federal student aid programs like the Pell Grant. That means that in 2022, the U.S. Department of Education looks at 2020 income data to determine how much grant aid students are eligible for when they go to school in the fall.
The government uses information that is two years old because family income rarely swings wildly from one year to the next. To save time and make filling out the FAFSA easier, the Education Department built the IRS Data Retrieval Tool. The tool allows families to pull over their income data from the IRS website to the FAFSA without having to manually dig up their tax records.
Normally, the more money a FAFSA applicant’s household earns, the less federal aid they will receive. The federal government counts unemployment benefits as income.
But the COVID-19 pandemic presented a special set of circumstances. As a part of pandemic relief efforts, Congress included a provision in the American Rescue Plan Act of 2021 that allowed individuals earning less than $150,000 in modified adjusted gross income to exclude up to $10,200 of received jobless benefits per recipient from their 2020 gross income.
Here is where it gets complicated. That income exclusion policy change did not take effect until March 11, 2021, which was right in the middle of tax season. Millions of people had already filed their 2020 tax returns by then.
Though the IRS took steps to correct income discrepancies for people who already filed their taxes, the IRS Data Retrieval Tool uses information from the original file. Consequently, the Education Department may wrongly calculate how much federal aid families may be entitled to this year.
What You Should Do Next
Families that relied on jobless benefits in 2020 should contact their college’s financial aid office as soon as possible. This is especially true if you notice your Pell Grant award shrunk from one year to the next.
Federal law gives financial aid administrators the authority to use “professional judgment” to help students caught in special circumstances receive as much aid as possible. In fall 2021, the Education Department informed these financial aid professionals that the agency was aware of the IRS taxable income issue.
Colleges will do their best to fix the problem if they notice it, but it is a difficult problem for financial aid administrators to detect. They need help to bring the income discrepancy to their attention.
Students caught in this situation should appeal, making sure to bring to their college’s financial aid office any documentation they have of earned jobless benefits in 2020. Look for documents like IRS Form 1099-G. Remember, financial aid administrators can only help if they have enough documentation to make the case.
The sooner students address the issue, the better. Make sure you receive the money for college that you deserve.
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More Student Aid May Be Available if You Received Pandemic Unemployment Benefits originally appeared on usnews.com