How Fafsa’s New Reliance on Older Tax Data Could Affect Colleges

The change in the federal student-aid application process that the Obama administration announced last month may at first sound arcane. Students will be able to apply earlier for aid, and to use older tax data, a practice with the requisite wonky name “prior prior year” or PPY.

But the change, observers say, could have big implications — and not only for financial-aid offices.

The change won’t take effect until around this time next year, so no one knows for sure how it will play out. Here’s what we can tell you so far:

What exactly is changing?

Currently, the Free Application for Federal Student Aid becomes available on January 1, and students and families fill it out using the financial information on their taxes from the previous year. That timing is awkward and inconvenient because most people have not yet filed the prior year’s taxes. Families can try to file their taxes early, hold off on applying for aid until later in the year, or apply using estimates and correct their information later.

That’s going to change next fall. The application will be available earlier, in October. And instead of using information from the previous year’s taxes, students and families will use their financial information from the “prior-prior” year.

How has this announcement been received?

Using prior-prior year tax data is widely seen as a win for students and has been a mainstay of recommendations for improving the financial-aid system for years. “It finally gives us the opportunity to have the cost conversation sooner in the process,” says Chris George, dean of admissions and financial aid at St. Olaf College.

But not everyone who’ll be explaining PPY to families is completely up to speed. A survey conducted this past May and June by the National Association for College Admission Counseling found that 9.8 percent of admission officers were “very familiar” and 47.2 “somewhat familiar” with PPY.

How will prior-prior year benefit students?

The famously frustrating process of applying for aid should become much easier for many students and families. Because nearly everyone will have filed their taxes for the year in question, families won’t have to worry about estimating their income and correcting it later.

The switch to prior-prior year will also enable many more applicants to take advantage of the Internal Revenue Service’s data-retrieval tool, which they can use to transfer information from their taxes to the Fafsa form. That leaves applicants with fewer relatively straightforward questions to answer.

Prospective students will also be able to learn their expected family contribution (a figure that drives need-based aid from the government and most colleges) the fall before they enroll.

Those benefits are certain, but advocates of PPY hope there will be others, since the change will enable colleges to send out financial-aid awards earlier in the admissions process.

What would earlier aid awards mean for applicants?

Applicants would have more time to consider what their various college options would cost before deciding where to enroll. As it stands, that key part of the decision process lasts only a few weeks for many applicants. With more time to make an informed decision, the thinking goes, students will be less likely to overborrow, or to enroll in a college that’s such a financial stretch that they later drop out.

Will students file their Fafsas earlier?

Just because families can apply for aid as early as October doesn’t mean that they will, says Sandy Baum, a senior fellow at the Urban Institute. “We know lots of people procrastinate in filling this form out,” she says, for reasons that go beyond its timing and complexity.

But even if families don’t file any sooner, colleges could still send out earlier awards under PPY, says Phillip Asbury, deputy director of the office of scholarships and student aid at the University of North Carolina at Chapel Hill. That’s because right now some families complete the form using estimated tax information, and some colleges won’t award aid until they’ve updated it with real numbers. Eliminating that two-step process will help speed things along.

Are colleges actually going to send aid awards earlier?

Some have already committed to moving their aid processes up — the National Association of Student Financial Aid Administrators has a list. Many others are waiting to see what their competitors decide to do, says Justin Draeger, president of the association.

How easily colleges can change their timing depends on some other players. The software vendors most colleges rely on to package aid will have to receive and incorporate updates from the federal government more quickly, for one thing. And colleges that use the College Board’s CSS Profile form to award their own aid are still waiting to hear if it, too, will be switching to prior-prior year data.

Need-based aid hinges on two variables: what students are deemed able to pay, and the college’s cost of attendance. Colleges don’t package aid for all applicants — only those who’ve both filed for aid and been accepted for admission. So one big question is if some colleges that follow the traditional calendar will change the timing of their admissions decisions. Colleges that have rolling admissions, though, may already be well poised to pair admissions offers and aid awards under PPY.

There’s also the matter of cost of attendance. Many colleges don’t finalize tuition for the coming year until sometime in the spring semester. Setting tuition earlier would be a big undertaking, but some college officials say they are at least considering it. Even if tuition is not yet finalized, colleges could send out estimated aid awards. Some already do that for students admitted under early-admissions programs. And public colleges sometimes send estimated awards because state budgeting issues have delayed decisions about tuition or state grant programs, or both.

Speaking of state grants, how will the switch affect them?

The National Association of State Student Grant and Aid Programs supported the push for PPY, but it’s also grateful that states have a year to figure out how to make it work, says Frank Ballmann, the group’s director of federal relations. “For a lot of states, the more problematic issue is not the switch to prior prior,” Mr. Ballmann says, “but the earlier application.”

States have to balance their budgets, so they don’t have bottomless pools of grant aid. To ration, some states award fixed grants on a first-come, first-served basis, while others provide a variable amount to everyone who files by the deadline. That means adjusting the timing could change the mix of which students receive state grants. One troubling possibility in some states is that there could be less money available for community-college students, whose admissions process tends to unfold closer to the start of the academic year, Mr. Ballmann says.

Are there other possible drawbacks for students?

Several enrollment managers wondered whether the Fafsa change might encourage more colleges to consider applicants’ ability to pay in their admissions decisions. Colleges don’t necessarily send all of their financial-aid awards out at once. Some might be inclined to send packages to less-needy applicants as quickly as possible, says Scott Friedhoff, vice president for enrollment and college relations at the College of Wooster, and to wait to award or even admit high-need students until they have a firmer sense of their aid budgets.

What about for colleges?

Moving to PPY is one of several changes on the horizon that could make it even more difficult for colleges to predict enrollment. Some admissions and aid professionals also expect that going out with earlier aid awards will result in a longer season of families’ trying to bargain for more aid — whether the college thinks they need it or not.

Will this mean more work for financial-aid offices?

The amount of work probably won’t change, says Eileen O’Leary, director of student financial assistance and assistant vice president for finance at Stonehill College, but the kind of work will. Presumably, the fact that more Fafsas will be completed with real tax data from the IRS could reduce the need for colleges to verify the information on the applications, though aid offices are still waiting for official word on that.

If they do in fact get to spend less time correcting students’ data, aid administrators could spend more time helping students with unusual circumstances and providing counseling — the type of work most would rather be doing.

Beckie Supiano writes about college affordability, the job market for new graduates, and professional schools, among other things. Follow her on Twitter @becksup, or drop her a line at beckie.supiano@chronicle.com.

Correction (10/9/2015, 10:55 a.m.): This article originally misspelled the surname of an official at the National Association of State Student Grant and Aid Programs. He is Frank Ballmann, not Ballman. The article has been updated to reflect this correction.