What Documentation can a College Financial Aid Administrator Request?
December 10, 2012
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.
Need money to pay for college?
Every semester, Fastweb helps thousands of students pay for school by matching them to scholarships, grants and awards for which they actually qualify. Sign up today to get started. You'll find scholarships like the $2,000 "No Essay" Scholarship from Niche, a scholarship open to all U.S. students and those planning on enrolling within 12 months.