Education, IRS try to make filing student aid form less daunting

Updated at 12:25 p.m. on Dec. 28, 2009

In hopes of boosting college enrollment, the Education Department and the Internal Revenue Service plan to deploy a technical workaround to alleviate headaches for students filling out one of the most complex government forms: the application for federal student aid.

Starting in late January 2010, the Education Department will allow certain students applying for spring semester aid to instantly transfer their tax data from an IRS database to the Web version of the Free Application for Federal Student Aid (FAFSA). The department expects the process will cut down on the time applicants spend entering the required data, while also increasing accuracy.

The FAFSA has been characterized as one of the most burdensome federal forms to complete and as a result has discouraged otherwise eligible students from pursuing federal assistance, some university officials said.

The new version of the online FAFSA allows students to temporarily leave Education's Web site to visit an IRS site, where they can view their tax information and give consent to transfer the information to the FAFSA form.

IRS had previously resisted filling out the form with an applicant's income and household information because the agency did not want to risk transferring private data to an outside Web site, according to Obama administration officials and financial aid advocates. IRS officials did not respond to requests for comment.

"For far too long IRS would not cooperate with Education," said Vivek Kundra, the federal chief information officer. But now "technologists at both organizations are collaborating to share data with individuals."

Kundra points to the project as an example of the administration's commitment to fostering collaboration throughout all levels of government.

Legislation governing federal student aid appears to authorize data transfers between the two agencies, but the IRS said exchanges would require changing parts of the Internal Revenue Code that address confidentiality, Education officials said on Tuesday. About a year ago, Education and IRS began developing a workaround that would not violate confidentiality mandates, they added.

The data transfer option is only available to students and parents with a valid Social Security number, who have completed a 2008 federal tax return and have not changed their marital status since Dec. 31, 2008. The Spanish version of the FAFSA does not yet offer the auto-completion service.

University officials have long urged the federal government to make the student aid application form easier to complete. "We think [the data retrieval] will have the biggest impact on the community college sector," said David Baime, vice president for government relations at the American Association of Community Colleges, an advocacy organization for nearly 1,200 two-year institutions, which serve a disproportionate number of minority and low-income students. "We think this is a significant breakthrough on the financial aid delivery system."

Only 65 percent of the community colleges' full-time students apply for financial aid, he added.

But some higher education groups raised questions about whether the cost of the data-sharing system would eat away at funds that could be better spent on tuition assistance. The American Association of State Colleges and Universities, a member organization representing 430 public colleges and universities that promotes access and affordability, said the government could inexpensively simplify the application by removing some of the form's questions.

"While [the association] has been supportive of efforts to simplify the application process, it is also cognizant that the elimination of some data currently collected can result in a less sensitive distribution of funds," said Edward Elmendorf, the association's senior vice president for government relations and policy analysis. The association "does recognize and support the hypothesis that a simpler application and process will help reduce a barrier to student participation and enrollment in college, but is sensitive about the potential funding impact on students who need the funding the most."

Elmendorf said he was concerned about the timing of the data transfer. The income data required to determine eligibility -- immediate prior year tax data -- is not available from the IRS until the summer, after most students have already applied for school. So, the data-sharing tool would primarily benefit students who start in the middle of a school year.

"The data currently used is not readily available until the summer prior to the beginning of a fall term, well after the optimal application cycle," Elmendorf said. "Thus, the data sharing arrangement currently planned for testing by [Education] and the IRS will only be of value to midyear enrollees."

To address the issue of numerous application questions, the administration is seeking authority from Congress to change its aid calculation formula so that the agency could eliminate 26 financial questions, which have little impact on whether aid is awarded and can be hard to answer, according to Education officials.

In addition, funding for the tax data exchange would not be taken out of accounts for the popular Pell grant program, schools or states, officials said.

Education executives acknowledged that the late availability of the IRS data limits the advantages of the data transfer service. The problem is that the law mandates the IRS and Education aid programs process income information at different times of the year, they said. Both agencies view the computer service as a pilot and are talking about how to make the process more practical. For example, they are considering allowing students who apply before their tax data is online to update their forms with that information when the IRS posts it, using the automatic service. Also, the two agencies are investigating whether the IRS can provide the information earlier if the applicant files his or her taxes electronically.