Alabama Fall Conference
Verification:
What, Why and
How?
October 16, 2008
1
Verification overview
•
•
•
•
•
•
What is verification
Who to verify
What to verify
What is acceptable documentation
When to submit corrections
Why policies and procedures
2
What is verification
• Process of ensuring the accuracy of the
data provided on the Free Application for
Federal Student Aid (FAFSA)
• Data establishes eligibility for need-based
financial aid
• Student and parent data (dependent
students only) must be checked for
accuracy
3
Who to verify
• Chosen by CPS:
– verification flag has value of “Y”
– asterisk next to EFC (Expected Family
Contribution)
– comment in comment section on ISIR/SAR
• Chosen by institution – based on your
verification policy
4
Verification applies to these
programs
• Federal Pell Grant
• Academic Competitiveness Grant (ACG)
• National Science and Math Access to
Retain Talent (SMART) Grant
5
Verification applies to these
programs (cont.)
• Campus-based programs:
– Federal Supplemental Educational
Opportunity Grant (FSEOG)
– Federal Perkins Loan program
– Federal Work-Study (FWS)
• Subsidized Stafford Loan programs:
– FFEL
– Direct
6
What is the 30 percent option
• For any award year the school must verify all
applicants the CPS selects for verification, up
to 30 percent of the school’s total number of
federal applicants
• Thirty percent verification option is just that, an
option
– can verify more
– can verify less – if all those selected by CPS
is less than 30 percent of their applicants
• If selected by CPS and not verified, school
should document the student’s file as to why
the information was not verified
7
How to calculate 30 percent
1. Define applicant
•
institution must develop its own definition
–
–
any student applying for federal financial aid regardless of
enrollment
any student eligible to receive Title IV funding
2. Determine total number of applicants
• use historical data
–
–
if estimating it is safer to overestimate than to
underestimate
total applicants actually verified must equal 30 percent
8
How to calculate 30 percent
(cont.)
3. Calculate 30 percent of total
•
•
may cease verification when verification is
completed on 30 percent of applicant pool
if total of CPS selected applications is less
than 30 percent you must verify all selected
applicants
9
What is a verification flag
• ISIR field indicating the student has been
selected for verification
– Y: selected for verification
– N: not selected for verification
– *: selected for verification on subsequent
transactions
– a number in this field does not necessarily mean the
student was selected for verification – CPS keeps
track of records selected (to approximately 30
percent)
• 0001-9999: the higher the number the more likelihood of
errors
10
Institutionally-selected applicants
• Institutionally-selected applicants do not count
towards the 30 percent option
• Selection may be based on characteristics that
are error-prone such as:
–
–
–
–
–
–
estimated tax figures
low family income and/or large family size
large number in college
certain FAFSA items status
first year status
other institutional criteria – the institution decides
which items to verify
11
Verification exclusions
• Certain types of applicants and data
elements may be excluded (as long as
there is no conflicting information or
reason to believe data is inaccurate)
• Funds which verification does not apply:
– unsubsidized Stafford or PLUS loan funds
• student may not avoid verification by only applying for
unsubsidized stafford loan
– Teacher Education Assistance for College and
Higher Education (TEACH) Grant
12
Verification exclusions (cont.)
• Funds which verification does not apply:
– Leveraging Educational Assistance Partnership
(LEAP)
– Special Leveraging Educational Assistance
Partnership (SLEAP) funds containing no federal
funds
– Robert C. Byrd Honors Scholarship Fund
• Legal resident of:
– Guam, American Samoa, Commonwealth of the
Northern Mariana Islands
13
Verification exclusions (cont.)
• Citizen of:
– Republic of the Marshall Islands, Federated
States of Micronesia, or Republic of Palau
• the above exclusions also apply to dependent
students’ parents (should document permanent
address in students file)
• Incarceration
• Recent immigrant (arrived during the
2008 or 2009 calendar year)
• Spouse or dependent student’s parent
unavailable
14
Verification exclusions (cont.)
• Death of the student
• Verified by another school
– letter from the school who completed
verification
– statement that the data was verified
• transaction number verified
• if relevant, reason school was not required to
recalculate the EFC
• Not an aid recipient
15
What to verify
•
•
•
•
•
•
Number in household
Number of household members in college
Adjusted gross income
U.S. income tax paid
Certain other untaxed income and benefits
Any other items selected by institution
– in accordance with consistently applied institutional
policies
16
Number in household – dependent
• Applicant
• Parents – do not include parents not living with
applicant
• Parent’s other children if they receive more than
one half their support from applicant’s parents
from July 1 through June 30
– include graduate students
– include unborn children if will be born before June 30
– exclude foster children
17
Number in household –
dependent (cont.)
• Applicant’s children if they receive more than
one half of their support from applicant’s parents
from July 1 through June 30
– include unborn children if will be born before June 30
• Other persons if they live with and receive more
than one half their support from the applicant’s
parents at the time of application and will
continue to receive support from July 1 through
June 30
18
Number in household independent
• Applicant
• Applicant’s spouse
– exclude spouse not living with applicant due to death,
separation, or divorce
• Applicant’s children if they receive more than
one half their support from the applicant from
July 1 through June 30
– include graduate students
– include unborn children if will be born before June 30
– exclude foster children
19
Number in household –
independent (cont.)
• Other persons – if they live with and
receive more than one half their support
from the household at the time of
application and will continue to receive
support from July 1 through June 30
20
Number in college
• Only individuals in household size (excluding
parents) who will or were attending a
postsecondary institution at least one half time
during the award year
– must be enrolled in a degree, certificate or other
program leading to a recognized credential at a
Title IV eligible institution
• exclude those enrolled in U.S. military academies
• cannot automatically include parent(s) in number in college
– you may exercise professional judgment with proper
documentation
21
Adjusted gross income (AGI)
• If a tax return was filed or was required to be filed you
must verify base year AGI for:
– student
– spouse – if married
– parent(s) or stepparent(s) – if dependent
• Base year is the complete year preceding the award year
– 2008-2009 = base year 2007
• If student, spouse, parent(s) or stepparent(s) did not file
and were not required to file income earned from work,
they must be verified
• If a filing extension is approved by the IRS
– school may (but is not required to) re-verify when the tax return is
filed
– school must request tax return but if the return is not submitted no
further action is needed
22
U.S. income tax paid
• If a tax return was filed or was required to be file
you must verify US income tax paid for:
– student
– spouse – if married
– parent(s) or stepparent(s) – if dependent
• If student, spouse, parent(s) or stepparent(s) did
not file and were not required to file no
verification of taxes is required
23
Untaxed income and benefits
• Institutions are required to verify six
specific types of untaxed income:
– Social Security benefits
– child support received
– untaxed IRA/Keogh deductions
– interest on tax-free bonds
– foreign income exclusion
– earned income credit
24
Other untaxed income
• Must verify other untaxed income that appears on a tax
return, excluding tax schedules:
–
–
–
–
credit for federal tax on special fuels (non-farmers only)
untaxed pensions and annuities
additional child tax credit
untaxed combat pay under certain conditions
• GEN 05-16 – explanation of combat pay and its treatment
– all applicants should report full combat pay as income earned from
work
– applicants who file a tax return– full combat pay as income earned
from work, however the amount of combat pay is not included in the
AGI and must be included on worksheet B
– applicants who do not file a return – should report combat pay as
income earned from work only, do not report as untaxed income
25
Other data elements
• Institution may choose to verify data elements
beyond those required by Title IV verification
regulations
– full discretion to determine data elements
• must follow all applicable Title IV verification procedures
– full discretion to determine acceptable
documentation for each element selected
– optional data may include:
• cash, savings, checking accounts
• other forms of untaxed income
• other real estate
26
What is acceptable
documentation
• Verification worksheets - developed by ED
– optional use
– dependent and independent versions
– verifies
•
•
•
•
•
household size
number in college
child support received
untaxed Social Security benefits
other untaxed income
– completed by student
– signed by student and 1 parent or stepparent (if
dependent)
27
Acceptable documentation
• U.S. income tax return
– AGI
– U.S. income tax paid
– taxed and untaxed IRA/Keogh deductions and
payments to qualified plans
– earned income credit (EIC)
– tax-exempt interest income
– foreign income exclusion
– untaxed portions of pension distributions
28
Acceptable documentation
(cont.)
• U.S. income tax return (cont.)
– taxed and untaxed portions of Social Security
benefits
– untaxed IRA distributions
– credit for federal tax on special fuels
– interest on tax-free bonds
– additional child tax credit
– untaxed combat pay, when reported
29
Acceptable documentation
(cont.)
• Foreign Income
– must be included on the FAFSA even if it cannot be
taken out of the country in which it was earned
– earned foreign income and taxes paid to a central
foreign government are treated in the same manner
as U.S. income and taxes paid
– a foreign tax return is considered equivalent to IRS
Form 1040
– if applicant, spouse or dependent applicant’s
parent(s) or stepparent(s) earned foreign income but
did not pay taxes on that income, it should be
reported as untaxed income
– the value of foreign income and taxes should be
reported in U.S. dollars using exchange rate at time
30
of application
Acceptable tax return formats
• Photocopy, facsimile or digital image of original, signed
tax return that was filed with IRS
– if original copy without signatures, at least one filer must sign
copy
• Tax return that has been completed to duplicate original
return and signed by at least one filer
• Other e-file documentation:
– print out of 1040, 1040A or 1040 EZ
• signed by at least one filer
– signature on form 8879 is not acceptable for verification
purposes
• contains only line items for which the filer supplied data
31
Acceptable tax returns
• U.S. Individual Income Tax Declaration
– Form 8453 not acceptable for verification
• In lieu of a return with the filer signature, the
institution may accept the tax preparer’s:
– stamped, typed, signed, or printed name (individual
persons name, not company name), and
– Social Security Number (SSN), Employer
Identification Number (EIN) or Preparer Tax
Identification Number (PTIN)
32
What if a tax return is not
available
• IRS transcript listing tax account information:
– must be signed by appropriate IRS official if institution
receives it from the student or parent
– stamped signatures acceptable
– if received directly from the IRS, no signature is
required
– must request copy of transcript or copy of return via
mail using Form 4506
– or call 1-800-829-1040
33
What if IRS cannot provide a
copy
• Signed statement from the filer
• All available W-2 forms
– if not available or self-employed a signed
statement is acceptable
• Statement should include verification of
earned income and other types of income
34
What about a return not yet filed
• Use estimated taxes to fill out FAFSA
• By time for verification all necessary tax
returns should have been filed and should
be used for verification
– HEROES Act of 2003:
• in lieu of an income tax return:
– a statement from the individual certifying that due to
being called up for active duty
» the individual has not filed and was not required to
» submitted a request for filing an extension, and
– Copy of W-2 or for self-employed a signed statement
35
What if an extension was filed
• Collect W-2’s and one of the following:
– IRS Form 4868 – application for automatic
extension
– copy of IRS extension approval beyond
automatic four month extension
• Collect and review tax return when filed
36
What about a non-filer
• Signed verification form – listing income
earned from work
• Signed statement certify non-filer status
and listing sources and amounts of income
37
Do I need to be a tax expert
• No, but you do need a basic knowledge of
those tax issues that could cause conflicting
information or substantially impact the EFC
calculation. You are obligated to know:
– whether or not someone is required to file a tax
return
– correct filing status of tax filer (married, head of
household, etc.)
– someone cannot be claimed as an exemption by
more than one person
• Conflicting information must be resolved
38
What about divorce, separation,
and widows
• If an applicant (or dependent applicant’s
parent) filed a joint return but is now widowed,
divorced, or separated, the institution should
separate the individuals income and taxes paid
- obtain the following from applicant or parent:
- W-2’s
- joint return, and
- signed statement certifying income if W-2’s are not
available or they are self-employed
39
Separating data on a joint return
• Using W-2’s or statement to determine
individual’s personal income
• Income and losses earned jointly should be
assessed at 50 percent
• If any adjustments were made to the AGI –
reduce the individual’s AGI by the amount or
portion that applies to the individual
• Tax figures
– tax table (preferred method) or
– proportional distribution method
40
How to document social security
benefits
• Statement from Social Security Administration
certifying amount received
• ED or institutional verification form
• Statement signed by applicant or dependent
applicant's parent certifying that the amount
listed is correct
• Supplemental Security Income (SSI) and
benefits received on behalf dependent children
and the amount deducted for Medicare must be
included
41
Documenting child support
• Does not have to be verified if the amount
is the same as previous year
• ED or institutional verification worksheet or
written statement certifying the amount of
support received for all children
– signed by applicant and at least one parent (if
dependent)
– if paid by government agency – statement
from agency is acceptable
42
What if you believe child
support information is
inaccurate
• You may request “source documentation”
– copy of separation agreement or divorce
decree
– signed statement form parent (if dependent)
or student’s spouse (if independent) verifying
support amount provided
– copies of canceled child support checks or
43
money orders
Other untaxed income and
benefits
•
•
•
•
•
•
•
•
•
•
Additional Child Tax Credit – IRS 1040
Combat Pay – IRS 1040 or 1040A
Credit for Federal Tax on Special fuels – IRS 1040
Earned Income Credit, Foreign Income Exclusion – IRS
1040
Interest on Tax-free Bonds – IRS 1040, 1040A, 1040EZ
IRA/Keogh Deductions, payments to self-employed SEP,
SIMPLE and other qualified plans – IRS 1040, 1040A
Social Security Benefits – IRS 1040, 1040A, 1040EZ
Tax Exempt Interest Income – IRS 1040, 1040A
Untaxed Portions of IRA Distributions – IRS 1040, 1040A
Untaxed Portions of Pensions & Annuities – IRS 1040,44
1040A
What about box 14 on W-2
• Do not include any amount reported in box
14 of the W-2 on the FAFSA or its
associated worksheets
• Letter from ED
45
Number in household and
enrolled in college
• Statement or verification worksheet listing each
household member’s:
– name
– age
• Relationship to applicant
– postsecondary school (if applicable) attending at least one half
time in a program leading to a recognized educational
credential
• If you doubt the accuracy of information provided:
– you must obtain a statement from each postsecondary
institution listed by applicant
– if member is not enrolled yet – letter of admissions is
acceptable
46
Electronic documentation
• May use electronic records and signatures for verification
• Before an institution can conduct transactions electronically – must
obtain consent or confirmation of consent electronically
–
–
–
–
–
–
scope of consent
hardware/software requirements
how to obtain paper copies of electronic records
right to conduct transaction via paper
right to withdraw consent
consequences of withdrawing consent
• Must issue identity credential electronically
• Must be able to locate, retrieve, present and interpret records
– records must be:
• authentic, reliable, useable, and complete
• accessible to ED or other entitled parties
• accurately reproduced for the time period the record must be
retained
47
What if corrections are needed
• Corrections are changes to data elements that
were incorrect at the time of application
– incorrect information must be correct after
verification is complete
– certain corrections must be reprocessed by
CPS prior to disbursing aid
• Data is correct and ISIR/SAR is valid
– pay Pell grant, ACG, SMART, FSEOG, Perkins loan
– employ FWS eligible students
– certify/originate and disburse/deliver FFEL/Direct
loans
48
Corrections are needed
• Data is incorrect
– determine if recalculation of EFC is required
– if recalculation is required determine if it
needs to be performed by CPS
• student eligible for Pell, FSEOG, ACG, SMART
– graduate status must be corrected by the
student through CPS
49
A little thing called tolerance
option
• Data is incorrect and there are no incorrect
non-dollar items, institution can apply a
$400 net tolerance
– if used – applies to all title IV programs
– if exceed tolerance EFC must be recalculated
– non-dollar items (number in college)
– not required to recalculate EFC
50
Tolerance formula
$400 net error tolerance for all Title IV programs
FAFSA
Parent AGI
+ Student AGI
+ Parent Untaxed Income
+ Student Untaxed Income
– Parent U.S. Taxes Paid
– Student U.S. Taxes Paid
= FAFSA data (uncorrected
sum)
Net Difference:  $400
Correct
Parent AGI
+ Student AGI
+ Parent Untaxed Income
+ Student Untaxed Income
– Parent U.S. Taxes Paid
– Student U.S. Taxes Paid
= Correct data (corrected sum)
51
Tolerance Example
FAFSA Data
Parent AGI
$15,500
Parent Untaxed Income
+ 1,200
Student AGI
+ 9,200
Student Untaxed Income
+
0
Parent U.S. Income Taxes Paid –
500
Student U.S. Income Taxes Paid –
200
= $25,500
Correct Data
$15,500
+
1,500
+
9,200
+
0
–
0
–
300
= $25,900
Net difference: $25,500 – $25,900 = $400
52
Recalculating EFC – to send or
not to send
• Pell, ACG, SMART grant programs
– if net error is greater than $400 tolerance, institution:
• reprocess through CPS, or
• recalculate EFC itself (institution becomes liable if the
calculation is incorrect)
– if award does not change
• corrections are not required to be processed via CPS
– If award decreases
• corrections must be submitted to CPS
53
Recalculating EFC – to send or
not to send (cont.)
• If award increases
– pay student on lower award without submitting changes to CPS
– submit corrections to CPS
• withhold payment until new EFC is received, or
• make first payment based on original EFC and make additional payment
upon receipt or new ISIR
• Campus based and subsidized Stafford loans
– if net error is greater than $400 tolerance and no Pell Grant:
• EFC must be recalculated but corrections not required to be submitted to
CPS
• no over-award - may make payment
• need increases – may increase payment
– over-award must be eliminated before payment is made
• $300 over-award tolerance for campus-based programs
• no over-award tolerance for ACG or SMART
54
Verification updates
• Updates are changes to data elements that were
correct at time of application but have since
changed
– allowable only for the following three items:
• dependency status:
– must update if status changes at any time
– except when due to marital status change
• number in household:
– once verification is complete, updating not permitted
– if not selected for verification – if change occurs after initial
application, updating is not permitted
– not required to monitor for non-selected applicants
• number of household members enrolled in college
– same as above
55
Change in marital status
• May not update dependency status, household size, or
number in college if change results from change in
student’s marital status
– if dependent student marries after FAFSA is completed – the
student remains dependent
• Must update household size if dependent student’s
parent remarries after application, before verification
– student must update only household size to include new
stepparent
• would not count new stepparent’s income or assets
• institution could use professional judgment to include stepparent’s
income
56
Professional judgment (PJ) and
verification
• If using PJ authority to adjust data elements used
to calculate the EFC and application was selected
for verification:
– application must be verified first
– verification documentation, corrected data and reason
for PJ adjustment must be noted in student file
• If using projected-year income data (non base-year
data) to recalculate EFC:
– Projected-year data does not need to be verified
57
Verification status codes
• For all Federal Pell Grant recipients, the verification
status code must be reported on the origination record
– V – verified
• applicant was verified, whether they were CPS or institutionally
selected
– W – without documentation
• first Pell Grant disbursement was made prior to all required
documents were received or verified
– must submit another disbursement record reporting verification code
under which second or final disbursement was made
– S – selected/not verified
• applicant was selected by CPS but not verified due to institution
reaching 30 percent verification limit
– Blank – not verified
• applicant not selected for verification by CP and not verified
58
Interim disbursements
• If there is no conflicting information and no reason to
believe the application information is inaccurate the
institution has the following disbursement options when
verification is incomplete for the following funds:
– Pell, ACG, SMART, FSEOG and campus based aid
• withhold payment until verification is complete
• make two disbursement for the first payment period
• employ student up to 60 hours under FWS
– subsidized FFEL/Direct loans
• refuse to certify or originate loan until verification is complete
• certify or originate loan before verification is complete
– but do not disburse or deliver loan proceeds
59
Interim disbursements
• Verification reminder
– verification is not required for
•
•
•
•
•
unsubsidized FFEL/Direct loans
PLUS loans
TEACH Grant
non-federal LEAP and SLEAP awards
Robert C. Byrd Scholarships
– may certify, originate and disburse loan
proceeds
– may award and disburse grant funds
60
Ineligible for interim
disbursement
• Ineligible for disbursement:
– school determines after the disbursement that
the student was not eligible
– verification not completed by deadline
– the amount received becomes an
overpayment:
• student ineligible to receive Title IV funds
• over-award tolerance of $300 only exits for
campus-based programs
• institution is liable if overpayment is not recovered
61
Verification time frames
• Institution decides when during the award cycle
to perform verification
– institution’s resources and procedures
– when verification would cause the least disruptions
for the office
– when verification would be least problematic for
students
• Verification can occur
–
–
–
–
upon receipt of application
before making tentative aid offer
after making tentative aid offer
after student accepts offer but before making
disbursements
– after first but before second disbursements
62
Verification time frames
• Deadlines
– campus based and FFEL/Direct loan programs
• student submits all requested documentation by
institutionally selected deadline
– Pell, ACG, and SMART
• student submits all requested documentation by
institutionally selected deadline
– must have all verification documents and valid SAR/ISIR by:
» earlier of 120 days after last day of enrollment; or
» ED-established deadline published annually generally
September 29 of each year
63
Policies and procedures
• Must
– be written
– address school options where flexibility is
required
– be made clear to all students
– be consistently applied
64
Policies and Procedures (cont.)
• Must include:
– procedures for identifying and processing
applications selected for verification
– deadline for applicant to provide documentation
– consequences of failure to meet deadline
– procedures applicant must follow to correct
application information
– method for notifying applicant of verification that
results in a change to EFC and award/loan amounts
– procedures for referring overpayments to ED
– procedures for referring cases of suspected fraud
and other criminal misconduct in connection with
application to ED’s Office of Inspector General
65
Verification communication
• In a timely manner, institution must clearly
explain to each selected applicant:
– documentation needed for verification
requirements; and
– applicant’s responsibilities with respect to
verification:
• deadlines
• consequences of failing to complete any required
action
66
Tips of the trade
• Review and update policies and
procedures annually
• Use worksheets
– online or paper format
• verification working paper
• tolerance calculation worksheet
67
Tips of the trade (cont.)
• Create cheat sheets each year
– tax form line item chart
– tax forms – highlight required verification line items
• http://www.irs.gov/pub/irs-pdf/f1040.pdf?portlet=3
– W-2’s – highlight required verification items
• http://www.irs.gov/pub/irs-pdf/fw2.pdf
– non-filer qualifications
• http://www.irs.gov/pub/irs-pdf/p501.pdf
• Page 2
– tax filing status and definitions
• http://www.irs.gov/publications/p501/ar02.html#d0e1116
68
Questions?
69
Resources
• www.ifap.ed.gov
– 2008-2009 Student Aid Handbook
• Application and Verification Guide
– Chapters 2, 4, and 5
• volume 2, School Eligibility and Operations
– Chapter 12
• NASFAA Fall 2006 Training Materials
– verification
• 34 CFR 668 Subpart E
– 668.16, 668.167, 673.5, 682.604(h) and
685.303(e)
70
Contact information
Karen Stinnett
Birmingham-Southern College
kstinnet@bsc.edu
205-226-4676
Paul Mittelhammer
National Student Loan Program
paulm@nslp.org
(404) 929-0251
71