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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
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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
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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.
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