New FAFSA Error May Impact Financial Aid Awards

• The Department of Education discovered yet another FAFSA issue, this time regarding tax information collected from the IRS.
• This latest hiccup could result in lower financial aid eligibility for students and families.
• Some students, however, may qualify for more aid after their application is reprocessed.
• These issues impact an estimated 1 million students.

Federal Student Aid (FSA) has discovered yet another error in processing the new Free Application for Federal Student Aid (FAFSA), this time with the potential to positively or negatively affect students' eligibility for financial aid awards.

FSA in a letter to financial aid administrators said that it discovered three issues in collecting income data from student applicants and their families. The Department of Education (ED) will need to reprocess approximately 7% of the 6.5 million FAFSAs submitted before March 30 to correct the error.

Based on department estimates, however, as many as 17% of FAFSAs submitted may have errors. That would impact 1.1 million applications.

Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators (NASFAA), expressed disappointment in the latest FAFSA issue.

"The rollout of the new FAFSA has been plagued by issues of broken trust, data integrity, and missed deadlines," he said in a statement. "Continually taking two steps forward and one giant step back is not a sustainable pathway toward getting financial aid offers out to students and families."

ED's rollout of the new Simplified FAFSA for the 2024-25 academic year has been troubled by technical glitches and processing errors.

What Went Wrong Now?

The latest issue is actually three errors, as outlined by FSA:

1. Inconsistencies in education tax credit data from the Internal Revenue Service (IRS)
2. Amended and updated tax returns from the IRS
3. Inconsistent data from tax returns vs. manually submitted income data, due to an error in written FAFSA instructions

The first two issues primarily involve data transfers between ED and the IRS. The 2024-25 FAFSA is the first iteration of the form where students and families can allow ED to access their financial information directly from the IRS, rather than inputting it manually.

The third error, however, is seemingly the fault of ED and FSA.

"The department has determined that the written instructions for applicants who are manually entering their education tax credits are inconsistent with the data that will be transferred from the IRS," FSA wrote to administrators.

The first issue, regarding the education tax credit, impacts the largest number of students. FSA estimates this error impacts about 15% of FAFSA applications.

Issue two impacted only 2% of applicants, FSA said.

FSA did not estimate the number of students affected by the third listed issue. The department said only that it caused errors in "a very small number" of applications.

Corrections May Impact Financial Aid Awards

Most other FAFSA issues have simply added to processing times, but these latest issues may affect students' financial aid awards.

The error regarding education tax credits is most likely to affect someone's award status. According to FSA, it will automatically reprocess about 5% of submitted FAFSAs when students would see their eligibility for financial aid awards go up as a result of reprocessing, meaning these students will potentially qualify for more federal, state, and institutional financial aid.

Approximately 10% of applications, however, would see financial aid eligibility decreased if they are reprocessed.

In these instances, ED is relying on institutions to determine the best path forward. Financial aid administrators will need to formally ask ED to reprocess an application if doing so would result in lower financial aid eligibility for the student, FSA said.

"Institutions may use their professional judgment to decide on a case-by-case basis, whether to proceed with the current [student data] for FAFSAs when reprocessing is expected to … reduce financial aid eligibility, or to request that the department reprocess any one or more of those FAFSAs," FSA wrote.

Essentially, institutions will decide whether 650,000 students will see smaller financial aid awards.

For issues two and three, ED will similarly allow institutions to request a reprocessed FAFSA if doing so would decrease a student's financial aid eligibility.

The Latest in a Long List of Issues

ED's launch of the 2024-25 FAFSA has been tumultuous, to say the least.

The application launched nearly three months later than usual. When it launched Dec. 30, many students couldn't submit the form due to technical glitches.

ED fixed most technical issues within the first few weeks, but FAFSA issues prohibited students with at least one noncitizen or undocumented parent from submitting their application for months. It wasn't until mid-March that this issue was resolved.

Other issues, such as the department mistakenly not adjusting for inflation when determining a student's Income Protection Allowance (IPA), have caused processing delays. In late March, ED revealed that a miscalculation in its FAFSA formula may cause further delays.

Education Secretary Miguel Cardona called on colleges and universities to delay decision dates and payment deadlines in light of these issues.