Arlene OdenwaldAssistant Director

Financial Aid and Scholarship ServicesCentral New Mexico Community College

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What These Slides Cover30% Verification CriteriaQuality Assurance Program Which data elements must be verified?What’s new about untaxed income?Conflicting InformationImmigration Verification Exclusions

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Administrative Burden“More than three in four college financial aid offices

reported an increase in the number of cases where they must verify information on the Free Application for Federal Student Aid (FAFSA), according to NASFAA's latest Quick-Scan Survey. The increase in the number of verification cases was more likely to affect two-year colleges and low-income students.

Some schools have had to take action to cope with the increase in verification cases this year. Nearly half (49 percent) said they have implemented the 30 percent cap on completing verification for student aid applicants…”

NASFAA Survey Shows Administrative Burden Increasing for Financial Aid Offices: Posted 12/07/09 to www.nasfaa.org.

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Calculating 30 percent Step by StepStep 1: Define applicants

ED does not regulate the definition of applicantInstitution must develop its own definitionExamples—Applicant can be:

Anyone who applies to the school Anyone who is enrolled Anyone enrolled & eligible to receive aid

Step 2: Determine total number of applicants at schoolUse historical dataSafer to overestimate than underestimateRevise estimate if necessary during award year

Step 3: Calculate 30 percent of total number of applicants

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Quality Assurance ProgramParticipation is voluntaryED provides guidelines, tools, and incentives

for participationParticipating schools exempt from prescribed

verification requirementsSchool must reassess and self-correct

verification process on an ongoing basis

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Which Elements Must Be Verified?Household sizeNumber in enrolled in college

Cannot automatically include parent, but can exercise professional judgment to include parents with proper documentation

Adjusted Gross Income (AGI)U.S. income tax paidCertain untaxed income and benefits

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CRCRAA and Untaxed BenefitsThe College Cost Reduction and Access Act (CCRAA) of

2007 made changes to the definition of untaxed income and benefits. The CCRAA specifically excludes welfare benefits, the amount of earned income credit, combat pay, the credit for Federal tax on special fuels, the amount of foreign income tax excluded from Federal income taxes, untaxed Social Security benefits, and the amount of additional child tax credit claimed for Federal income tax purposes from consideration as untaxed income and benefits from Need Analysis.

This means they are excluded from both the calculation of the EFC and the estimated financial assistance (EFA) when determining eligibility for Title IV FSA programs. It is also important to note that stimulus payments received by eligible taxpayers in 2008 are not considered income on the 2009-10 FAFSA.

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What Documents Do I Need? Most common documents include:

For taxable income (and some untaxed income) Base year tax return

For untaxed income, household size and number in college ED or school verification worksheet

Acceptable documentation listed on page AVG-87.Alternative documents may include:

Official agency documentationInstitutional verification (number enrolled in

college)Signed statement

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General Document RequirementsDocuments can be originalsDocuments can be copies

--Photocopies, fax, digital printoutsSignatures on a copy are as valid as original

signatures

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Corrections vs. UpdatesCorrections are changes to data elements

that were incorrect at the time of applicationUpdates are changes to data elements that

were correct at the time of application but have since changedDependency override—any time during award

yearHousehold size and number in college can only

be updated up through the date of verification. If not selected, cannot be updated.

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Marital StatusMay not update dependency status, household size,

or number in college if change results from change in student’s marital status.

When should one change marital status?After filing FAFSA, a married student files for divorce

and is now separated from her husband. The student goes from 3 in family (husband, wife, and child) to 2 in family( student and child). During professional judgment, if you do not change marital status, the CPS treats the second family member as a spouse and not a dependent. Makes a huge difference in EFC because Formula B is used instead of Formula C in the EFC calculation

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Updating Information and Professional JudgmentInstitution must complete verification before

it exercises professional judgment to change the EFC of a student selected for verification

If using projected-year income data to recalculate EFC, projected-year data do not need to be verified

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Tolerance Example: Dependent and Parent

FAFSA Corrected Data

Parent AGI $15,800 $15,500

Parent Untaxed Income

+ 1,200 + 1,500

Student AGI + 9,200 + 9,200

Student Untaxed Income

+ 0 + 0

Parent U.S. Taxes Paid

- 500 - 0

Student U.S. Taxes Paid

- 200 - 300

Totals $25,500 $25,90013

Changes After VerificationSchool must review all subsequent ISIRs

received even if verification has been completedNSLDS postscreeningStudent or parent may make a changeAnother school may make a change

School must also reviewMultiple reporting records (MRRs)

Concurrent enrollment Potential overawards

NSLDS transfer monitoring alerts14

Sources of Conflicting Information (Other Offices Within Institution)Federal regulation requires system to share

information within the institution. This is an institutional requirement, not just a financial aid office requirement

Examples: admissions, registrar, business office, athletics, veterans, payroll, housing, academic departments, development office

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What Is Not Conflicting InformationTaxpayer claimed multiple/conflicting creditsInformation included in Box 14 of W-2Household size differs exemptions on tax

returnDependent under IRS rules vs. ED definition

of dependentAssumptions made by the CPSFAFSA filed using estimated incomeSecondary confirmation match successful,

but student has an expired DHS document 16

Tax Return Basic KnowledgeInformation required to know:

Minimum income requirements for filing a tax return

Correct tax filing status for an individualA person cannot be claimed as an exemption

on more than one tax return

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Tax Return Data ConflictSome examples that must be resolved:

Married, but both claimed “head of household”Student claimed self as exemption, but so did

parentA student claims not required to file but earned

$30,000 from work CPS Reject Code 20 or Comment Codes 126

and 121A non-tax filer is reporting an income that is

above the IRS filing requirement

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What About Head of Household?FSA Handbook states we do not need to be

tax experts, but there are some issues that even a layperson with basic tax information can evaluate, even “head of household”

If a student is married at the end of the calendar year (Dec. 31), student cannot claim head of household

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BUT a Tax Filer Can Be “Considered Unmarried” If on the last day of the tax year the tax filer meets ALL the following

conditions: You file a separate return, defined earlier under Joint Return After

Separate Returns (page 22). By filing Form 1040X, filer can change his filing status.

You paid more than half the cost of keeping up your home for the tax year

Your spouse did not live in your home during the last six months of the tax year

Your home was the main home of your child, stepchild, or foster child for more than half the year

You must be able to claim an exemption for the child. However, you can still meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rules described in Children of divorced or separated parents under Qualifying Child in chapter 3 (page 27), or in Support Test for children of Divorced or Separated Parents under Qualifying Relative in chapter 3 (page 34). The general rules for claiming an exemption for a dependent are explained under Exemptions for Dependents in chapter 3 (page 25).

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Experiences with Head of HouseholdWe have student write a statement explaining why

they should be considered unmarried and a head of household

Situation: Married couple lives in 2 households because they own two homes. IRS told us one can file head of household but the other has to file married because there were no dependents or exemptions associated with the person filing as “married.”

Someone from our office was told by an IRS representative that the answer to our questions will depend on who’s answering the telephone.

Proves necessity of documenting21

Immigration and CitizenshipStudent must be a lawful permanent resident who

is legally permitted to live and work in the U.S. permanently.

Or she must be an eligible noncitizenRefugeePersons granted asylumConditional entrantsCuban-Haitian entrantsVictims of human trafficking (introduced in 0708)Persons paroled into the U.S. for at least one year

(introduced in 0708)Some persons under the Violence Against Women Act

(New in 0910)22

Immigration FactsWho are we talking about?

Students or parents who are undocumented, illegal aliens, illegal immigrants

About 65,000 undocumented students graduate from U.S. high schools each year

Have had access to K-12 education for the last 25 years

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Immigration and the ApplicantA student’s eligibility for Title IV aid is based on his

status as a U.S. citizen or eligible noncitizenIf the student

Was not born in U.S. he or she is not a U.S Citizen Is not a U.S. permanent resident Is not an eligible non-citizen

Then, student is undocumented and is ineligible for federal student aid

Will not pass match processes: USCIS or SSN match

What if student has been living in the U.S. since he was 4 years old?

States have offered some help24

States Who Have Offered HelpSome states have offered in-state tuition

Texas, California, Washington, Utah, New Mexico, Nebraska, Oklahoma, Illinois, New York, Kansas Have passed state laws providing in-state tuition for

illegal aliens who have attended high school in the state for 3 or more years (finaid.org)

Some states are going in the other directionGeorgia, Oklahoma, Colorado, Arizona

Have passed legislation denying in-state tuition rates (Christian Science Monitor, April 3, 2009)

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Immigration and a Dependent’s ParentsIf the dependent student is a U.S. citizen

The parent of a dependent student does not have to be a citizen or eligible noncitizen in order for the student to be eligible to receive Title IV aid

Parents of Title IV applicants are not required to have SSNs unless they are applying for PLUS loans

According to FAFSA instructions, if the parent has no SSN, 000-00-0000 should be entered in the parent SSN field 26

What About the 000-00-0000 Number?A dependent student’s FAFSA will not be

rejected for lack of a parental SSN if:000-00-0000 is listed in the parent SSN field, andThe parents indicate they have not or will not file a

U.S. tax returnA dependent student’s FAFSA will be rejected

(reject code J or K) if:000-00-0000 is listed in the parent SSN field, andThe parent’s indicate that they have filed or will

file a U.S. tax return

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More on the 000-00-0000 NumberWhy are they rejected by the IRS? Because

most people who file taxes have social security numbers

But some tax filers are not eligible for SSNs; therefore, the IRS issues Individual Tax Identification Numbers (ITINs)

If the information is correct as originally reported, the school or student can list 000-00-0000 in the parent SSN field again and resubmit to the CPS for processing.

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What About These Tax ID numbers?IRS issues an ITIN to a resident or non-

resident alien who does not have and is not eligible for a Social Security Number

ITIN numbers should not be entered in place of the SSN on the FAFSA

The use of zeros on the FAFSA by the parent of a dependent student who does not have a SSN but uses an ITIN to file a federal tax return is not conflicting information

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Verification and Documented Dependent StudentsIf documented dependent student with

undocumented parents Is not selected for verification, then there is no

issue, unless there is conflicting informationIs selected for verification, then

Obtain Verification Worksheet, and U.S. tax return

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Verification and Documented Dependent StudentsIf documented student’s parents did not file

Income should be listed on Verification Worksheet If income is less than minimum required to file a tax

return, then Verification Worksheet is all that’s needed Don’t need W2s.

If income is more than minimum required to file a tax return, then Student’s parents must be asked to file a tax return

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The Center for Economic Progress Is there now a greater risk to taxpayers who use an ITIN?

The answer appears to be yes. Given the current emphasis on national security, it is easy to see the temptation to use information about ITIN applicants for the purpose of enforcing immigration laws. (See Section VII: Current Operating Environment.)

Will an ITIN become increasingly difficult to apply for and obtain? The rules for ITIN application are already more stringent than they were even

one year ago. Whereas in the past, almost anyone without an SSN could obtain an ITIN, current rules allow only those persons with a verified tax reporting requirement to apply. (See Section IV: Recent Changes to the ITIN.)

Will administration of the program include increased information sharing among governmental agencies?

The IRS takes privacy laws very seriously but it is not the only agency with access to information about ITIN applicants. Though there are no current provisions for greater information sharing within the ITIN program itself, it remains an open issue. (See section V: IRS Privacy Rules and Confidentiality of ITIN Information.)

Will administration of the program include assurances to prospective ITIN applicants and acceptance agents that ITIN usage is secure?

Simply put, there are no iron clad guarantees. Social service agencies, acceptance agents and applicants themselves would do well to approach the situation with knowledge of the risks involved. However, even the IRS recognizes that it is not in their interest as tax collectors to compromise the privacy of taxpayers.

Published by the Center for Economic Progress, 2004; (www.nilc.org/immsemplymnt/ITINs/ITIN_Paper_2004-web.pdf) 32

Common Compliance IssuesMissing documentation (tax return,

verification worksheets, etc)Missing signatures (student, parent,

preparer)ISIR not reprocessedConflicting documentation not resolved

Consequences Ineligible disbursements Over/underawards Reconstruction of records

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Resources for VerificationRegulations

34 CFR 668 Subpart E (668.51 to 668.61) and 668.16 (f)

FSA Handbook2009-10 FSAHB Chapter 4

FSA COACH onlineVerification module of FSA Assessments

(Quality Assurance)ISIR Analysis Tool

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A Good Quote With Which To End “In addition, much of the information that

institutions are required to verify are unverifiable, according to a recent report issued by the President’s Council of Economic Advisors (CEA) and the National Economic Council (NEC).”

NASFAA Survey Shows Administrative Burden Increasing for Financial Aid Offices: Posted 12/07/09 to www.nasfaa.org.

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Verification Exclusions of Entire ApplicationThe entire application is excluded verification if the

applicant:Is not a Title IV recipient (Not making SAP)If the student will ONLY receive any of the following

Title IV aid: Unsubsidized Federal Stafford loans or PLUS loans TEACH Grant LEAP/SLEAP (otherwise known as SSIG) Robert C. Byrd Honors Scholarship

Is incarcerated at time of verificationTransfers from another institutionDies during the award yearIs an immigrant who arrived in the U.S. during either

calendar year of the award year (that is, 2009 or 2010 for the 2009-10 award year)

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Verification Exclusions of Entire Application

Certain Pacific Island residents Dependent’s parents must also meet the criteria to

quality for exclusionIs a dependent applicant whose

Parents are deceased, or physically or mentally incapacitated,

Parents address is unknown and cannot be obtained by the applicant,

Parents are residing in a country other than the U.S. and cannot be contacted by normal means of communication

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Verification Exclusions of Spousal Data OnlyOnly the independent applicant’s spousal

data is excluded from verification if the applicant’s spouse:Is deceasedIs mentally or physically incapacitatedCannot be located because the address is

unknown and cannot be obtained by the applicant

Is residing in a country other than U.S. and cannot be contacted by normal means of communication 38

Verification Exclusions of Certain Data Elements OnlyIf the institution receives an ISIR within 90

days of applicant’s signing the FAFSA institution is not required to verifyHousehold sizeNumber in college

Number in household and number in college are two items that change often from the time of application. Although these items do not have to be verified under certain circumstances, institutions may want to consider doing so due to significant impact of these items on the EFC calculation.

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Verification Exclusions of Certain Data Elements OnlyThe number in household of a dependent student if

the parents are married and the household size is 3; or the parent is unmarried and the household size is 2.

The number in the household of an independent student if the student is married and the household size is equal to 2, or the student is unmarried and the household size is equal to 1.

The number in household is excluded if the same amount was verified in the previous year

Child support received is excluded if the same amount was verified in the previous award year

Untaxed income is excluded from a federal, state, or local agency based on a financial needs assessment

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