A Key Tool’s Outage Threatens to Set Back Financial-Aid Reforms

For years, it was the holy grail of simplifying federal financial aid: Prior-prior year.

Allowing applicants to pre-populate the Free Application for Federal Student Aid with tax information from two years earlier would transform the notoriously complicated process of applying for money to pay for college, advocates said. It would increase Fafsa completion rates and encourage earlier filing, giving families more time to compare offers from colleges and a better shot at state and institutional aid. But the White House and Congress had hesitated again and again, citing the costs of expanding access to aid.

So when the Obama administration announced, in the fall of 2015, that it would allow applicants to use older tax data and file the Fafsa as early as October, student advocates and financial-aid administrators were elated. The Institute for College Access and Success called it a “crucial step to dramatically simplify and improve the financial-aid process for millions of students and families.”

The changes took effect just six months ago. But already, some of the promise of the switch to prior-prior-year has been lost. The Internal Revenue Service’s data-retrieval tool, which families use to easily import their tax information, is out of commission. Students are facing new obstacles to accessing aid. And financial-aid experts are warning that some low-income students won’t have their award packages by May 1 — decision day for many colleges.

The Education Department has implied that the data-retrieval tool will be back online by October, in time for the next Fafsa filing season. Still, some advocates fear that the consequences of the extended shutdown could extend beyond the fall, stunting efforts to streamline the Fafsa in the long term. They fear that families have lost confidence in the tool, and worry that attempts to increase its security will create fresh hurdles for low-income students.

“If the revised version of the tool is more complicated to use or requires information that families don’t have at their fingertips, students at the margin will fall out of the process,” said Robert M. Shireman, who served as a deputy under secretary of education under President Obama.

Setback for Simplification

Mr. Shireman should know. During his first year in Washington, in 2009, he helped broker an interagency agreement that led to the creation of the now suspended tool.

At the time, Obama officials and student-aid experts were arguing that letting applicants import information from their income-tax returns into the online application would save time and reduce transcription errors. But the Internal Revenue Service was balking at the idea, citing privacy concerns and the additional workload.

The breakthrough that occurred in 2009 was the result of “a high-level push, from the White House chief of staff to the IRS commissioner and education secretary, to come up with a workable solution” to sharing data, recalled Mr. Shireman, who is now a senior fellow at the Century Foundation. “It would not have happened at all without that push.”

In the eight years since then, the tool has become the “linchpin” for Fafsa simplification efforts, said Karen McCarthy, director of policy analysis for the National Association of Student Financial Aid Administrators.

“We got prior-prior year because we had the data-retrieval tool,” she said. “Having that tool down sets the whole Fafsa simplification process back years.”

Up until this fall, only applicants who had filed their taxes for the previous year could make use of the data-retrieval tool. Students or families who filed their taxes late often lost out on additional sources of non-federal aid.

The switch to prior-prior-year tax data, coupled with an earlier Fafsa start date, allowed families to file the aid application in the fall or early winter, before the scholarship deadlines set by states, colleges, and charities. It was supposed to increase the number of applications filed, and reduce the number subject to the time-consuming “verification” process, in which applicants must provide additional proof of income or other items.

And for a while, it seemed the change was working. By mid-February of this year, high-school seniors had completed 603,000 more Fafsa applications than they had a year earlier, according to the National College Access Network.

Then, on March 3, just before many states’ deadlines for applying for aid, the IRS abruptly took down the tool, citing security concerns. The outage has forced applicants to manually enter their tax-return data and has slowed down what was supposed to be a speedier approval process.

In a recent survey conducted by the aid administrators association, a quarter of 192 respondents said that they had seen an increase in the number of applicants selected for verification, and 81 percent said the verification process had been lengthened or delayed as a result of the outage. Some said it was taking their students weeks — even months — to obtain tax transcripts from the IRS.

Finding Balance

Advocates and aid administrators say the delays have already caused some students to miss out on state and institutional aid. Now, with “decision day” looming, they worry that some students who still haven’t received aid packages will have to put off college.

“Low-income students can’t commit to a college without knowing if they’ll have enough money to attend,” said Carrie Warick, director of policy and advocacy at the National College Access Network.

Like Mr. Shireman, she’s anxious to see what security fix the feds come up with for the tool. In a recent blog post, she urged the IRS to take a different approach than it took following a cyberattack on its Get Transcript tool in 2015. After that attack, the agency required people seeking a tax transcript for income-verification purposes to submit a cellphone number and evidence of a loan or credit card in their name. Low-income families may not have debt, credit cards, or cellphones, she said.

Others worry the shutdown has shaken public confidence in the data-retrieval tool, and could make some applicants wary of using it going forward.

“I think people had assumed that federal agency security was up to par,” said Ms. McCarthy. She said she’s already heard from one financial-aid administrator who was a victim of the data breach and is reluctant to use the tool again.

The challenge, Ms. McCarthy said, “is how do we make it as secure as possible, but still make it usable.”

Kelly Field is a senior reporter covering federal higher-education policy. Contact her at kelly.field@chronicle.com. Or follow her on Twitter @kfieldCHE.