College financial aid troubles follow those who received pandemic unemployment benefits

Unemployment benefits helped millions of people who lost their jobs during the pandemic, but now the payments may throw a wrench in the college financial aid process.

The disconnect between a pandemic relief program and colleges finding financial aid could lead to less aid for some applicants, student advocates say. Students from families who received unemployment benefits in 2020—particularly if the family filed taxes in early 2021—may want to check with college financial aid offices to make sure they receive the maximum amount.

Here’s what you need to know:

To qualify for financial aid, students and their families complete the Free Application for Federal Student Aid, known as the FAFSA. The form is the portal to federal Pell grants and need-based student loans, and states and colleges use it to assign their own aid.

The FAFSA for the 2022-23 academic year became available October 1 and uses financial information from the 2020 tax year, which is typically reported on tax returns filed in 2021.

Normally, unemployment benefits are considered income when calculating a student’s eligibility for financial aid. But as part of its pandemic relief effort, the federal government allowed Americans earning less than $150,000 to exclude unemployment benefits up to $10,200 per recipient from their 2020 taxable income. came into force on March 11, 2021 – after many people had already filed their 2020 tax returns and declared their unemployment benefits as income.

The Internal Revenue Service said it would automatically make corrections to people who had already filed tax returns and send refunds if needed. But the potential for confusion about the FAFSA persists, especially for first-time filers who also use the IRS data retrieval tool to complete the form.

In an updated Feb. 24 “alert,” the IRS warns FAFSA filers not to use the data tool if they have filed their 2020 tax return and have not excluded any unemployment benefits from their income. .

“The concern is, are colleges looking at inflated revenue?” said Brendan Williams, senior director of counseling at uAspire, a nonprofit organization that seeks to reduce financial barriers to college.

It’s unclear how many students could be affected, said Kim Cook, chief executive of the National College Attainment Network.

The federal office of student aid has asked college financial aid administrators to address the issue if they become aware of it. But administrators may not be able to easily identify affected claims because they typically don’t see a family’s income breakdown, said Karen McCarthy, vice president of public policy and federal relations at the National Association. of Student Financial Aid Administrators.

What should families do? Contact their college’s financial aid office to discuss their concerns and have unemployment benefits removed from income on the FAFSA, said Mark Kantrowitz, a financial aid expert.

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