Why Do Financial Aid Application Forms Use Last Year's Income?
Why do the government and colleges use last year’s income to determine financial aid for the current year? Our financial situation has changed, my husband was laid off last year but our FAFSA looks okay because of his severance pay. We need financial aid help in order to help our daughter who wants to attend college in the fall. How can we qualify for a Pell Grant when last year’s income is used to determine our eligibility? — Anonymous
Financial aid application forms start with the previous year’s income because this information is verifiable. It can be compared with information reported to the IRS on W-2 and 1099 statements and the taxpayer’s federal income tax return. It is also a reasonably accurate proxy for the family’s income during the award year.
However, sometimes there are unusual circumstances that can cause the previous year’s income to not reflect the family’s ability to pay. These can include one time events, such as a special bonus or inheritance. These can also include job loss and salary reductions, high unreimbursed medical and dental care expenses, high dependent care costs for a special needs child or elderly parent and private K-12 tuition for the student’s siblings. Unusual circumstances can include anything that has changed since the start of the previous tax year and anything that distinguishes the family from the typical family.
Families who are affected by an unusual circumstance should ask the college financial aid administrator for a professional judgment review (PJ). Some colleges call it a special circumstances review or a financial aid appeal.
Families can appeal for more aid at any time, not just at the start of the financial aid application season. If a job loss occurs in the middle of the year, the family can and should ask for PJ then and not wait until the next year.
Ask the college financial aid administrator about the college’s procedures for a professional judgment review. Some colleges ask the family to complete a special form that is designed to elicit details about the family’s financial situation. Others ask the family to write a letter summarizing the unusual circumstances.
In both cases the process is driven by independent, third party documentation. For example, if a primary wage-earner lost his or her job, supply the college with a copy of the layoff notice and a copy of a recent letter showing the receipt of unemployment benefits within the last 90 days.
When a family is affected by job loss, often the college will switch from the previous year’s income to an estimate of the current year’s income. This estimate will take severance pay and unemployment benefits into account.