Seven Ways to Get Flagged By Your Financial Aid Office
One of these things is not like the other. It’s a familiar tune to financial aid administrators and the last thing a student wants to hear about their FAFSA.
Filers of the Free Application for Federal Student Aid have a one-in-three chance of being flagged by the U.S. Department of Education for a process called verification. It’s not a forensic audit, though. Nothing may be wrong with your FAFSA at all. Taking advantage of the application’s IRS Data Retrieval Tool greatly reduces the likelihood of getting selected. But if you didn’t, don’t panic.
Financial aid administrators verify tax and financial data to improve the overall accuracy of an application. Very rarely will it change a family’s expected contribution. But, if it does, it’s better to find out now than after you’ve settled into your new dorm.
Here are seven items that may have slipped under the fed’s radar but caught the attention of your financial aid office:
1). Work income and adjusted gross income are off—by A LOT
Students and parents completing FAFSAs must use prior-prior year data when filling out the form. Individuals can have their tax information from two years ago transcribed for them electronically with the IRS Data Retrieval Tool. But all FAFSA filers enter the income they earned from wages, salaries or tips manually. It could match the AGI perfectly (or be off by hundreds, possibly thousands, of dollars).
Legitimate reasons can range from taxable interest to retirement account distributions. Capital gains could also be realized from the sale of properties or investments. If it’s the one-time rollover of a retirement plan, file a Special Circumstances Request with the financial aid office.
But if that’s not the case, prepare your Wage and Tax Statements (W-2s) from employers. Small-business owners and the self-employed should also have their tax return’s Schedule C at the ready.
2). Treating all aid as taxable income
Not all awards are created equal, especially free money. Previous federal Pell and state-based grants can reduce a student’s overall debt burden. The same goes for the scholarships a Vested Academics coach can scout out. But don’t report them as taxable income on your FAFSA, if they’re not going into your pocket. Examples of actual, taxable aid include AmeriCorps Benefits as well as the scholarships and grants going to fellows and research assistants.
3). Non-filers making too much money
Claiming children as dependents may lower a parent’s overall tax bill. But don’t wait until you’ve filed the FAFSA to discover your child has been socking away the dough. Singles under the age of 65 didn’t have to file federal taxes on incomes less than $13,400 in 2017. But claimed children need to find a tax preparer, and fast, if the FAFSA shows they made $6,350 or more that year.
4). Claiming exemptions that can’t exist
You can pick your friends, you can pick your nose, but you can’t pick your friend’s nose. Gross, yes. But the same principle applies during tax season. Tax filers have to decide how to split their exemptions. Students can’t claim themselves AND be claimed by their parent on two separate tax returns. Pick wisely and avoid sticky situations that could force you to amend your return.
5). Overstuffed household sizes
Family means nobody gets left behind or forgotten. But reporting more family members on your FAFSA than your tax returns support means Grandma may get the chop. If the financial aid office hands you a Verification Worksheet, only include family members claimed as tax dependents. Foster children don’t count toward the household size, however. The same goes for individuals aged 24 or older who allege you, or your parents, provide more than 50 percent of their material support without supporting documentation.
6). Odd numbers in college
In addition to household size, the FAFSA asks filers how many siblings will be away at college. But they don’t have to be full-time. Half-time enrollment during the academic year in a program that leads toward a college degree or certificate counts, whether the sibling is out-of-state or down the street at the local community college. That number should also include the student completing the FAFSA, regardless of their enrollment level. Parents, on the other hand, are never included—even if they’re enrolled half-time.
7). Breaking up
Love hurts. But filing the FAFSA doesn’t have to, especially if parents are recently separated or divorced. While it may rely on two-year-old data, the application itself is a snapshot. It’s supposed to reflect a family’s financial reality from the day it’s filed.
Parents are asked to indicate their current marital status regardless of how they filed their federal taxes previously. Students should enter the financial information of the parent they primarily lived with 12 months before the FAFSA was filed.
But, if there’s no formal separation or divorce decree, come prepared with documentation proving both parents live physically apart. Utility bills, mortgages, and rental/lease agreements do more to tie one parent to another property. Working with a professional financial aid consultant can help you sort these issues out before you file your financial aid applications.