It may not seem intuitive that the Federal Application for Federal Student Aid uses tax information from 2 years ago. But changing the tax year used made little change in award packages and makes for a smoother aid application process.
Applying for aid from the 2017-18 academic year forward was changed to help students and parents with completing the FAFSA.
Tax Year for the FAFSA
Tax information has been a standard way to collect that income data for students and parents.
However, student and parent taxes for the previous year was often being compiled and submitted to the IRS at the same time the student was trying to apply for financial aid for the upcoming school year. It was almost as if the cart was before the horse for many families who needed financial aid information to make college decisions or simply plan for the upcoming college costs. If nothing else, it put unnecessary pressure on families to complete taxes in order to get earlier financial aid determinations.
Schools and the U.S. Department of Education saw students routinely complete a FAFSA year after year, and most families saw only minor changed in income from year-to-year. This analysis led the financial aid community to work toward a change in federal statute to allow "prior prior year" (sometimes referred to as PPY) v. "prior year" tax information when determining aid eligibility.
Beginning with the 2017-18 FAFSA, students and families provided income information from the 2015 tax year rather than the 2016 tax year. For 2018-19, the FAFSA used 2016 tax data, and so on.
Using an earlier tax year for determining aid eligibility makes it significantly simpler for families to complete their FAFSA, because they will are using information from tax records that had been completed and processed by the IRS many months earlier.
Moreover, most aid applicants (and their parents, when required) would then be able to use the FAFSA/IRS Data Retrieval Tool (DRT) to automatically transfer required tax return information directly from the IRS onto their FAFSA. Using the DRT not only increases the accuracy of information used to determine aid eligibility but also eliminates the burden for many students and parents of providing tax return transcripts for verification of the FAFSA income information.