Student Loan Crisis
Student loans are making news, usually not good. While many students and their families took note of what the Trump Administration might do, such as ending the Public Service Loan Forgiveness program, they may have missed important student loan developments. As we celebrate graduations and National Higher Education Day (June 6), MoneyTips has prepared this exclusive five-part series on how these major student loan issues are affecting those who want to borrow, those already in debt, and our entire country.
Government Tool Shutdown Causing Major Issues For Student Borrowers
Student Loan Crisis Part 1 of 5
Recent government actions have caused pain and chaos on both ends of the collegiate funding process: applying for student aid/loans and paying off defaulted loans.
Recent legal action against the Department of Education has halted the repayment process on defaulted student loans, leaving borrowers in a dangerous limbo. Meanwhile, an important IRS tool used by those applying for student loans has been shut down since early March due to security concerns, complicating the student aid process for some and throwing others into dangerous territory with timelines.
The Free Application for Federal Student Aid (FAFSA) is the first milestone for virtually all student aid. It is a fairly complex form that helps student aid and loan providers determine the amount that a student's family should be expected to pay toward their higher education, and therefore the amount of aid for which they qualify.
FAFSA requires extensive information regarding family finances, including taxes. The IRS developed a data retrieval tool that allowed students to fill in tax-related information on the FAFSA automatically using data from a previously submitted tax return. Unfortunately, due to security concerns, the IRS has closed down the Data Retrieval Tool for the remainder of the current FAFSA season. It is expected to be available again by the time the next FAFSA season arrives on October 1, 2017.
The good news: you can still fill out the FAFSA form online as you always do. The bad news: the June 30, 2017 deadline is rapidly approaching – and deadlines may be earlier for individual states and colleges. That leaves you limited time to get a 2015 tax transcript (the default for the 2017 FAFSA) if you did not retain a copy.
Transcripts should be available via the software or tax professional used to prepare your 2015 taxes, or you can request the necessary information from the IRS directly. The IRS Get Transcript Website is the simplest method if you have the necessary identifying information (and if the site is currently working – there have been issues with Get Transcript in the past). If not, you can call the IRS at 800-908-9946 or complete form "4506T-EZ, Short Form Request for Individual Tax Return Transcript".
Unfortunately, it will take five to ten days to receive your paper copy, and time is of the essence. FAFSA funding within your state for your preferred college may be allocated on a first-come, first-served basis. Your college options could be limited as a result.
Since the IRS Data Retrieval tool is also used to apply for (or verify income for) student loan income-driven repayment (IDR) programs, those involved in IDR programs will need to supply information to their loan servicer in a similar fashion. If you are in an IDR program or applying for one, you face a similar challenge. Without the Data Retrieval Tool, your servicer will require paper copies of the most recently filed federal tax return or IRS tax transcript. Copies of pay stubs may be adequate in some cases – check with your loan servicer for details.
Further delays may be expected because submissions filled out without the data retrieval tool may take longer to verify and to process based on a higher likelihood of errors. The FAFSA is not a simple form for those who have filled it out before, and for first-timers, it can be positively terrifying. Even so, you must not give up hope on student aid just because of the process involved.
The bottom line: get the needed information from the IRS as quickly as possible, and if you are confused over how to fill out the FAFSA, seek assistance through the FAFSA website or other online resources. Do not expect much useful assistance from the government – they have been helpful enough already, haven't they?
Find out quickly at what rate you can refinance your student loan.
The next article in our Student Loan Crisis series concerns the government's stopping the collection of defaulted student loan debt.