5 ways to document income for the FAFSA or an IDR plan while IRS data retrieval is down

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If you’re paying back student loan debt in an income-driven repayment (IDR) plan like PAYE, REPAYE, or IBR, you need to recertify your income every year.  Failing to recertify your income can get you kicked out of an IDR plan, and send your monthly payments soaring.

To simplify the process of documenting your income for an IDR plan, for the last several years the IRS has provided a convenient online tool that allowed you to import tax data from previous tax returns directly into your online application. This was a big time saver, and also prevented errors when entering information. With the IRS Data Retrieval Tool, it only takes about 10 minutes to recertify your income.

The IRS Data Retrieval Tool was also used by millions of new and returning college students filling out the Free Application for Federal Student Aid, or FAFSA. The FAFSA opens up the door not only to federal student loans and other aid, but financial aid from your state, college and other scholarship programs. The reason you have to document your income every year you’re in school is because much of this aid is need-based.

The bad news is that the IRS Data Retrieval Tool on fafsa.gov and StudentLoans.gov was deactivated in March because of concerns that identity thieves were using it to obtain tax records and file fraudulent tax returns. According to recent testimony by IRS officials before the House Committee on Oversight and Government Reform, identity thieves may have accessed the personal information of as many as 100,000 taxpayers and filed fraudulent tax returns claiming millions of dollars in refunds.

Now the IRS and the Department of Education say that while security fixes are being implemented, the IRS Data Retrieval Tool probably won’t be back online until the start of the next FAFSA season, which begins Oct. 1, 2017.

[UPDATE: On June 2, 2017, access to the IRS Data Retrieval Tool was restored for borrowers applying for an income-driven repayment plans on StudentLoans.gov. To address privacy and security concerns, tax return information is encrypted and hidden from the borrower’s view on the IRS DRT web page and the online IDR plan application. Some students filling out the 2018-2019 FAFSA starting Oct. 1, 2017 will be able to use the tool, but with certain limitations.]

You can still file your FAFSA for the 2017-2018 school year online, but you’ll have to manually enter 2015 tax information. The same goes for student loan borrowers applying for or recertifying their enrollment in an income-driven repayment program.

The Consumer Financial Protection Bureau warns that a flood of manual applications for enrollment and recertification in IDR plans could result in delays. But if borrowers submitted their paperwork on time, loan servicers aren’t supposed to change their monthly payments until they’ve processed their paperwork. Some borrowers say that their loan servicer has placed them in forbearance or put them back on the standard 10-year repayment plan, which can cause unpaid interest to be capitalized and push back the timeline for qualifying for loan forgiveness.

Documenting your income for the FAFSA

The IRS offers this advice for applicants filing a 2016-17 or a 2017-18 FAFSA application — both of which require data from your (or your family’s) 2015 tax return.

• If you kept a digital or paper copy of your 2015 tax return for your own records, you can grab the numbers from that.
• If you don’t have a copy of your 2015 tax return, you may be able to access it through the tax software provider you or your family used to file your 2015 return. If you used a tax professional, they may also be able to provide a copy.
• You can download your tax transcript, which is a summary of your tax return, online using the IRS’ Get Transcript service. But brush up on the IRS’s “rigorous identity authentication requirements” before attempting to register. Among other things, your’e going to need your Social Security number, a personal account number from a credit card or loan, and a U.S-based mobile phone account in your name. You cannot have a “credit freeze” on your credit records.
• It’s a little easier to obtain a copy of your tax transcript by mail — all you need is your Social Security Number or Individual Tax Identification Number (ITIN), date of birth, and the mailing address from your latest tax return. Submit this information through Get Transcript and your tax transcript will be mailed to you within five to 10 days. If you’ve moved, you need to file a change of address form with the IRS, which can take four to six weeks to process.

Certifying your income for an IDR plan

After you’ve submitted your online IDR application, your loan servicer will ask you to provide supporting documentation as proof of income via fax, surface mail, or your servicer’s website.

A copy of your most recent tax return will satisfy the Department of Education’s requirements for calculating your adjusted gross income (see list above for instructions on obtaining your tax transcript).

If you haven’t filed a federal income tax return in the last two years, or if your income has changed significantly since you last filed taxes, you may be required to submit a paper request to enroll in an IDR program with alternative documentation of your income such as a pay stub.

Each borrower who is enrolled in an income-driven repayment plans is on their own timeline to recertify each year on the anniversary of the date they were enrolled. The Consumer Financial Protection Bureau has noted that borrowers who were caught by surpise by the extra work needed to recertify their income have a 10-day grace period during which they can submit their application without being kicked out of the plan.

Borrowers who can’t access their tax returns have the right to provide alternative proof of income, like pay stubs, W-2 forms, or letters from employers. But some borrowers have complained that loan servicers aren’t recognizing those documents, and improperly holding up or delaying approval of applications for recertification, the bureau said.

For more tips on filling out the Free Application for Federal Student Aid, see Credible’s free FAFSA guide.

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