News: Data, Research & Evaluation

How FAFSA Verification Harms Low-Income Students and What ED Can Do To Help

Tuesday, November 27, 2018  
Posted by: Carrie Warick, Director of Policy and Advocacy
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“Tax audit.” The phrase strikes fear into many Americans, but most of them will never experience this process. In fact, the IRS audits less than 1 percent of filers with adjusted gross income between $1 and $500,000.

That is not the case for students hoping to receive federal financial aid. Approximately 30 percent of students who complete the Free Application for Federal Student Aid, or FAFSA, each year are selected for verification, the audit-like process of proving that the information included on the FAFSA is accurate. This equates to millions of students – anywhere from 5 to more than 6 million, depending on the year – who cannot access financial aid for college without completing additional paperwork.

NCAN’s latest white paper – "FAFSA Verification: Good Government or Red Tape?"– outlines what verification is, who is selected for verification, and the consequences selected students may face. It also offers a number of policy recommendations, most of which are steps the Department of Education could take, to lessen the negative effects of FAFSA verification and help more students access financial aid.

For low-income students, the chances of being flagged for verification are even higher. The Department of Education selected over half of Pell-eligible FAFSA applicants for verification for the 2016-17 FAFSA filing cycle. That’s over 5.4 million students who spent hours combing through documents, visiting online web portals, going to the IRS office in person to request a transcript, and meeting with their financial aid administrators to prove that what they said on the FAFSA was accurate.

Only 56 percent of Pell-eligible students selected for verification go on to receive a Pell Grant, in comparison to 81 percent of Pell-eligible students not selected for verification.

This represents a 25 percentage-point melt: students who likely were Pell-eligible but were unable to access Pell dollars. It is unknown how many of these students are able to find a way to pay for higher education and still enroll and how many forgo their plans entirely.

Why is FAFSA verification necessary?

The verification process is required to help the U.S. Department of Education manage the improper payment rate for the Pell Grant and federal student loan programs. Improper payments happen when the federal government overpays or underpays a recipient of a federal benefit, or they make a payment to someone who should not be eligible for that benefit.

The Department has a goal to keep improper payments for the Pell Grant program under 7.85 percent, and was dinged in fiscal year 2017 for just missing the mark with a rate of 8.2 percent.

Yet there is extremely limited public information about how students are selected for verification or what impact verification actually has on decreasing the improper payment rate. Further, changes over the past several years meant to improve the process seem to have made it worse according to the National Association of Student Financial Aid Administrators.

FAFSA verification is unintentionally and quietly wreaking havoc on students trying to access financial aid. While some level of review is necessary, the level of burden unequally placed on low-income students has not been publicly demonstrated to be necessary.

What Can Be Done to Reduce the Burden of Verification?

The U.S. Department of Education, with or without Congress, can do a great deal to decrease this burden on students and institutions of higher education. For example, the Department could:

  • Allow schools to accept tax returns instead of tax transcripts when working to verify a student’s information.
  • Eliminate the requirement for non-filers to obtain an IRS letter that simply states they did not file taxes.
  • Improve and increase information sharing within and across agencies.
  • Release more robust data on the impact of verification to the public, particularly given the significantly higher rate at which the Department verifies FAFSA filers in comparison to audits of tax filers at the same earnings level.

For the complete list of policy recommendations, download our white paper: "FAFSA Verification: Good Government or Red Tape?"