Increased Student Aid Options for Individuals who Received Pandemic Unemployment Benefits

**Unemployment Benefits and FAFSA: Ensuring You Receive Adequate Aid**
**What You Need to Know**
The Impact of Unemployment Benefits on Federal Student Aid Programs

Millions of Americans faced financial hardship due to the pandemic-induced economic shutdown in 2020. To provide relief, Congress passed legislation that suspended the normal rules regarding taxable income. During this time, many individuals decided to pursue higher education or vocational programs to gain new skills or pivot careers. However, more than two years later, these individuals may unknowingly receive less financial aid than they deserve due to the federal government’s processing of the Free Application for Federal Student Aid (FAFSA).

Using “Prior Prior Year” Tax Data for FAFSA Calculations

The FAFSA relies on tax data from two years prior, known as “prior prior year” tax data, to determine eligibility for federal student aid programs, including grants like the Pell Grant. For example, in 2022, the U.S. Department of Education examines income data from 2020 to determine the amount of grant aid students qualify for when they enroll in the fall. The government employs this approach because family income typically does not fluctuate significantly from year to year. To simplify the FAFSA process, the Education Department developed the IRS Data Retrieval Tool, allowing families to transfer their income data from IRS records directly to their FAFSA application.

Inclusion of Jobless Benefits as Taxable Income

Under normal circumstances, individuals with higher household incomes receive less federal aid through the FAFSA. This includes counting unemployment benefits as part of a household’s income. However, the COVID-19 pandemic created unique circumstances. As part of pandemic relief efforts, Congress implemented an income exclusion policy within the American Rescue Plan Act of 2021. According to this policy, individuals earning less than $150,000 in modified adjusted gross income could exclude up to $10,200 of received jobless benefits per recipient from their 2020 gross income.

Timing Considerations and Income Exclusion Policies

An issue arises with the income exclusion policy change, as it only went into effect on March 11, 2021, right in the middle of tax season. By that point, millions of individuals had already filed their 2020 tax returns using the original tax rules. Although the IRS took steps to rectify any income discrepancies for those who had already filed, the IRS Data Retrieval Tool relies on information from the original tax filing. Consequently, there is the potential for miscalculations in determining the amount of federal aid families are entitled to for the current academic year.

**What You Should Do Next**
Contact Your College’s Financial Aid Office

For families who relied on jobless benefits in 2020, it is crucial to reach out to their college’s financial aid office as soon as possible. This is especially important if you notice a decrease in your Pell Grant award from the previous year. Financial aid administrators possess the authority to exercise “professional judgment” and support students facing unique circumstances in receiving as much aid as possible. In fall 2021, the Education Department acknowledged the IRS taxable income issue, informing financial aid professionals about it.

Appeal and Provide Documentation

Students caught in this situation should file an appeal, ensuring they submit any relevant documentation of their earned jobless benefits in 2020 to their college’s financial aid office. Look for documents like IRS Form 1099-G, as financial aid administrators can only assist if there is sufficient documentation to support the case. Addressing the issue promptly increases the likelihood of receiving the rightful financial aid for college.

Take Action to Ensure Adequate Aid

In conclusion, individuals who received jobless benefits in 2020 and completed the FAFSA may be entitled to more financial aid than initially determined by the government. To rectify this potential discrepancy, it is important to contact your college’s financial aid office, as they have the authority to help review and adjust your aid award if needed. Submit any necessary documentation of your jobless benefits to support your appeal and ensure that you receive the appropriate financial assistance for your education.