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financial aid Student Loans

Can I Use Last Year’s Taxes on this Year’s FAFSA?

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. 

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Student Loans

How Upromise Can Help You Pay Off Student Loans

With 45 million student loan borrowers working to repay more than $1 trillion in student loan debt, many are looking for ways to help reduce their total bill. One simple way that could potentially help is signing up for a free Upromise account.

Upromise is best known as a program geared towards helping parents save for college. Upromise has a cash back rewards portal for online shopping and a cash back rewards credit card. Users shop through the portal and receive money back on purchases, similar to Rakuten or Ebates. 

While this cash can be deposited into a 529 college savings plan, it can also be sent directly to a checking or savings account, and then used to make extra payments on your student loans.

How to Earn Cash from Upromise

Signing up for Upromise is quick and is free. Here is how you can use Upromise to help earn extra money to pay back your student loans:

Shopping. Upromise lets you earn rewards from online shopping made through the shopping portal. Login to your account, click on a vendor’s offer on the portal, and then purchases will earn cash back rewards to your Upromise account. Cash back offers are typically 1% to 5%, but can be as high as 40% for specific vendors, especially during the holiday shopping season.

You might be thinking: “I have student loan debt; I can’t spend my money shopping!” First of all, way to go on being proactive. You shouldn’t spend money on things you don’t really need. Second, you can use the portal to shop for essentials when needed. For example, earn 2% cash back at Costco, 8% at Sam’s Club and cash back at various grocery stores and wireless carriers. 

There’s also cash back on sites that already offer deals, such as 3% cash back on Living Social or 4% cash back on Groupon. 

If it’s in your budget, there are plenty of other stores based on a variety of categories, including clothing, travel, beauty and health, sports and outdoors, shoes, computers and electronics, and more. 

Even if all you do is direct your current spending through the Upromise shopping portal, you can earn cash back to help repay your student loans. 

Signing up for the credit card cash back rewards. Upromise credit card holders earn 1.25% cash back on purchases made. Here’s the important thing – This is only beneficial if you are paying off the entire credit card balance every month. If you’re willing to make purchases you would be normally making anyways, such as gas and groceries, and pay off the balance in full, then you can use the cash back towards student loan payments. Otherwise, with a balance on the card, you’ll be paying interest (up to 24.99%).

You definitely don’t want to rack up more debt by using a credit card that you can’t pay in full. There are dozens of cash back credit cards available out there, so find the one that’s right for you, if you’re in the market for a new card.

Dining out. You can earn rewards by eating at select restaurants. Purchases made at participating restaurants using a linked debit or credit card will earn 2.5% cash back on your entire purchase (including tax and tip). 

You can search your location to find participating restaurants near you and ones that are best for your budget. Restaurant listings include a dollar sign rating to give you an idea of the price point. For budget diners, stick to the $ (one dollar sign). 

Asking family members to join in. If you’re lucky enough to have a parent or other family member who is willing to help, ask them to join as well. 

Bottom Line

Upromise isn’t the only solution for student loan debt. But since it is free to join, it could possibly help you pay a little extra towards your student loans.

Learn more about Upromise and sign up today.

At Savingforcollege.com, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.