Savingforcollege.com

The Free Application for Federal Student Aid (FAFSA) bases income and tax information on a specific year’s federal income tax returns, the prior-prior year. You cannot substitute income and tax information from a more recent year even if the information is available. However, if your income has changed since the prior-prior year, you can file a financial aid appeal with the college’s financial aid administrator.

For example, the 2021-2022 FAFSA is based on 2019 income and tax information. You cannot substitute 2020 income and tax information.

What is the Prior-Prior Year?

The prior year (PY) is the tax year before the academic year. The prior-prior year (PPY) is the year before that.

Thus, the prior-prior year provides two-year-old income information.

The FAFSA switched from prior-year income to prior-prior-year income starting with the 2017-2018 FAFSA for several reasons:

Use of the prior-prior year allows the FAFSA to be based on federal income tax returns that have already been filed, as opposed to estimating income and tax information. This increases the number of applicants who can use the IRS Data Retrieval Tool, thereby increasing the accuracy of the information submitted on the FAFSA.
Switching to the prior-prior year allows the FAFSA to be filed earlier, starting on October 1 instead of January 1. This aligns the timing of applications for financial aid with the timing of applications for college admission.

But, isn’t two-year-old income information inaccurate? Not really. In most cases, income does not change significantly from one year to the next. The income information, whether based on the prior year or the prior-prior year, is a proxy for income during the academic year. Studies have shown that the prior-prior-year income is just as accurate (or just as inaccurate) as prior-year income for most families.

Use our Financial Aid Calculator to estimate your expected family contribution (EFC) and financial need based on student and parent income and assets, family size, number of children in college, age of the older parent and the student’s dependency status.

What If Income Has Changed a Lot Since the Prior-Prior Year?

There are three scenarios in which income might have changed significantly since the prior-prior year.

Unusual events. Job loss, furloughs and pay cuts can cause a big change in income.
One-time events. The receipt of a bonus or other one-time event during the prior-prior year might yield income information that is not reflective of ability to pay during the academic year.
Volatile income. Some jobs normally have income that varies considerably from one year to the next, such as taxi drivers, waiters and small business owners.

Consider the impact of the coronavirus pandemic on annual income. With more than a third of American workers losing their jobs in 2020 due to the coronavirus pandemic, more than 1 million parents of college-age children have experienced a big drop in income. The use of pre-pandemic income information from 2019 on the 2021-2022 FAFSA will not accurately reflect the family’s ability to pay during the 2021-2022 academic year.

Can Applicants Change the Income Reported on the FAFSA?

Applicants are not allowed to substitute the current year’s income for income during the previous year. If they do this, their FAFSA will be flagged for verification.

Instead, they should ask the college’s financial aid administrator for a professional judgment review, also known as a financial aid appeal. The financial aid administrator can make adjustments to the data elements on the FAFSA based on adequate documentation of special circumstances.

Even before the pandemic, job loss and pay cuts were the top reasons for an appeal and the type of appeal that was most likely to be approved. The number of appeals will double or even triple during the pandemic, but there are well-established policies on how to handle such an appeal.

Financial aid administrators can choose to substitute income during any 12-month period for the prior-prior-year income, if it more accurately reflects the family’s ability to pay for college.

Most financial aid administrators will substitute an estimate of income during the academic year. For example, if a parent lost their job but now has a new job, the financial aid administrator will use a recent pay stub to estimate income during the full year.

Some financial aid administrators will substitute income during the prior year for income during the prior-prior year, if it is available. They will consider unemployment benefits and severance pay in addition to the change in income.

If the parent’s income is volatile, the financial aid administrator might use an average of adjusted gross income from 3-5 years of federal income tax returns to smooth out the volatility.

See also: