[WPRT 108-11]
[From the U.S. Government Publishing Office]



108th Congress 
 2nd Session                COMMITTEE PRINT                       WMCP:
                                                                 108-11
_______________________________________________________________________
 
                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                               __________

                            WRITTEN COMMENTS

                                   on

       LEGISLATION TO STREAMLINE THE STUDENT AID APPROVAL PROCESS

                                     
[GRAPHIC] [TIFF OMITTED] CONGRESS.#13

                                     
                            JANUARY 23, 2004

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff
                  Janice Mays, Minority Chief Counsel

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                    AMO HOUGHTON, New York, Chairman

ROB PORTMAN, Ohio                    EARL POMEROY, North Dakota
JERRY WELLER, Illinois               GERALD D. KLECZKA, Wisconsin
SCOTT MCINNIS, Colorado              MICHAEL R. MCNULTY, New York
MARK FOLEY, Florida                  JOHN S. TANNER, Tennessee
SAM JOHNSON, Texas                   MAX SANDLIN, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.














                            C O N T E N T S

                               __________
                                                                   Page
Advisory of Tuesday, November 25, 2003, announcing request for 
  written comments on Legislation to Streamline the Student Aid 
  Approval Process...............................................     1

                                 ______

Heritage Foundation, Kirk A. Johnson, statement..................     3
Maryland Association of Student Financial Aid Administrators, 
  Arnold, MD, Rachel Brinkley, statement.........................     6
National Association of Student Financial Aid Administrators, 
  Dallas Martin, letter..........................................     8
National Taxpayers Union, Alexandria, VA, Pete Sepp, letter......     9
Puerto Rico Association of Student Financial Aid Administrators, 
  San Juan, Puerto Rico, Luis Aquiles, letter....................    10
Saunders, Su A., Martins Ferry, OH, statement....................    11
University of Phoenix, Phoenix, AZ, Robert T. Collins, statement.    11
Western Association of Student Financial Aid Administrators, Kate 
  Peterson and Tami Sato, letter.................................    12
















ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
November 25, 2003
OV-9

                     Houghton Announces Request for

                   Written Comments on Legislation to

              Streamline the Student Aid Approval Process

    Congressman Amo Houghton (R-NY), Chairman, Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittee is requesting written comments on H.R. 3613, the ``Student 
Aid Streamlined Disclosure Act of 2003.''
      

BACKGROUND:

      
    The U.S. Department of Education and its contractors process more 
than 13 million applications for over $50 billion in student aid every 
year. The Department of Education has estimated, based on a study that 
matched Education data and Internal Revenue Service (IRS) data, that it 
overpaid $602 million in Pell Grants during fiscal years 2001 and 2002 
because of its inability to compare tax-related information provided by 
students with information on file with the IRS. A study by the U.S. 
General Accounting Office released in July 2003 confirmed that allowing 
data sharing between the IRS and the Department of Education could 
result in substantial savings, and Congress has authorized the 
Secretary of Education to match data with the IRS in section 484(q) of 
the Higher Education Act (HEA), as amended by the Higher Education 
Amendments 1998 (P.L. 105-244).
      
    Representative Sam Johnson (R-TX) has introduced legislation, the 
Student Aid Streamlined Disclosure Act of 2003 to improve the process 
of verifying income information provided by student aid applicants and 
to better protect taxpayer privacy. This legislation would implement 
the Bush Administration's proposal to allow matching of IRS data, and 
it has been drafted in consultation with three Federal agencies. The 
Committee on Education and the Workforce endorsed the Administration's 
proposal as a means of reducing waste, fraud, and abuse in programs 
administered by the Department of Education, and the legislation is 
cosponsored by Chairman John Boehner (R-OH). The Bush Administration 
has estimated that the proposal has the potential to eliminate as much 
as $1 billion in overawards of student aid within 5 years of enactment.
      
    Under existing law and practice, an individual who applies for a 
student loan or grant and, in many cases, the applicant's parent, 
guardian, or spouse is required to provide detailed tax return 
information. This information is used to establish the amount and type 
of aid that may be granted to the student under the HEA.
      
    In order to verify tax return information supplied by students, 30 
percent of student loan applicants (nearly 4 million) are flagged for 
verification. Schools are required to obtain copies of relevant Forms 
1040 from the applicant. In addition, a smaller number of individuals 
who apply for income-contingent loans are required to consent to full 
disclosure of tax information from the IRS. In contrast to the privacy 
safeguards that apply when tax return information is obtained from the 
IRS, there are few safeguards against unauthorized disclosure of 
information obtained during the verification process.
      
    The verification process not only requires broader disclosure than 
necessary to determine the proper amount of student aid, but it is 
ineffective as well. Many of student aid applications that are not 
verified may contain inaccurate estimates of income. Applicants often 
prepare their applications in January or February, before their tax 
returns are filed. Even the applications that are verified may be 
misleading. For example, the information reflected on Forms 1040 
submitted for verification may not be the same as information on file 
with the IRS due to an adjustment that occurs after Form 1040 is filed.
      
    Under the Student Aid Streamlined Disclosure Act of 2003, students 
and their parents or guardians will no longer be required to provide 
copies of Form 1040 or blanket waivers of tax confidentiality in order 
to obtain a student loan or grant. In announcing the request for 
written comments Chairman Houghton stated, ``The current process for 
checking student aid applications is not right. It leaves taxpayers 
open to substantial violations of their privacy. It is far less 
effective than it could be, so I'm happy to work with my colleague 
Representative Sam Johnson (R-TX) and the Bush Administration to 
streamline the application process. It must assure us that student aid 
goes to individuals who most need it and to protect better taxpayer 
privacy.''
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, by the close of business, Friday, January 23, 2004. 
Please Note: Due to the change in House mail policy, the U.S. Capitol 
Police will refuse sealed-packaged deliveries to all House Office 
Buildings.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
202/225-2610, in WordPerfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.

                                 
        Statement of Kirk A. Johnson, Ph.D., Heritage Foundation
                Reducing Fraud in the Pell Grant Program
    Written comments on H.R. 3613, the ``Student Aid Streamlined 
Disclosure Act of 2003'' given to the Committee on Ways and Means, 
Subcommittee on Oversight, U.S. House of Representatives.\1\
---------------------------------------------------------------------------
    \1\ This comment is based largely on a previously published 
Heritage Foundation Backgrounder. See Kirk A. Johnson, ``Data Sharing 
Can Reduce Fraud in the Pell Grant Program,'' Heritage Backgrounder No. 
1714, December 17, 2003, at www.heritage.org/education/bg1714.cfm.
---------------------------------------------------------------------------
    Next year's Higher Education Act reauthorization and other recently 
introduced legislation provide Congress and the Bush Administration 
with an excellent opportunity to cut waste and fraud in the U.S. 
Department of Education's Pell Grant program. By changing how financial 
information is verified, Congress could save between $300 million and 
$600 million per year at a time when the Pell Grant program is becoming 
increasingly expensive to operate.
    Curtailing waste and fraud is of special importance to the 108th 
Congress, as the 2004 Congressional Budget Resolution mandates that 
each Congressional Committee cut 1 percent of its discretionary budget 
items by eliminating waste.\2\ One proposal--the Student Aid 
Streamlined Disclosure Act of 2003 (H.R. 3613), introduced by 
Representative Sam Johnson (R-TX)--would accomplish this by using data 
sharing to reduce fraud and waste in the Pell Grant program.
---------------------------------------------------------------------------
    \2\ See Brian M. Reidl, ``How Congress Can Achieve Savings of 1 
Percent by Targeting Waste, Fraud, and Abuse,'' Heritage Foundation 
Backgrounder No. 1681, August 28, 2003, at www.heritage.org/research/
budget/bg1681.cfm.
---------------------------------------------------------------------------
    Reducing fraud and waste in the Pell Grant program would yield 
substantial budgetary savings:
Reduced fraud
    A recent U.S. General Accounting Office (GAO) report found that 
fraud accounted for more than $600 million in Pell Grants from fiscal 
year (FY) 2001 to FY 2002, or just over 3 percent of the program 
dollars per year.\3\ Eliminating this fraud would free roughly $300 
million per year for grants to low-income college students--enough 
money to fund $4,000 Pell Grants to 75,000 needy students who might 
otherwise be turned away.
---------------------------------------------------------------------------
    \3\ U.S. General Accounting Office, ``Taxpayer Information: 
Increased Sharing and Verifying of Information Could Improve 
Education's Award Decisions,'' GAO-03-821, July 2003, at www.gao.gov/
new.items/d03821.pdf.
---------------------------------------------------------------------------
Reduced waste
    The Office of Management and Budget estimates that if the Internal 
Revenue Service (IRS) and the Department of Education shared and 
verified income information of student aid applicants, total savings 
(both in terms of fraud and in terms of program administration) might 
be as high as $638 million per year.\4\
---------------------------------------------------------------------------
    \4\ Office of Management and Budget, ``Department of Education,'' 
in Budget of the U.S. Government, Fiscal Year 2004 (Washington, D.C.: 
U.S. Government Printing Office, 2003), p. 98, at www.whitehouse.gov/
omb/budget/fy2004/pdf/budget/education.pdf.
---------------------------------------------------------------------------
What Is the Pell Grant Program?
    The Pell Grant program is the largest federal aid program for 
postsecondary students, with a budget of nearly $11.4 billion for FY 
2003 (representing almost half of all federal postsecondary aid 
administered by the Department of Education).\5\ Pell Grants are 
awarded to undergraduate students according to a need-based formula 
established by Congress,\6\ which uses the student's and (usually) the 
parents' incomes and assets to gauge eligibility.
---------------------------------------------------------------------------
    \5\ U.S. Department of Education, ``Education Department Budget by 
Major Program,'' updated March 5, 2003, at www.ed.gov/about/overview/
budget/history/edhistory.pdf (November 4, 2003).
    \6\ Under very limited circumstances, such as certain post-
baccalaureate teacher licensure programs that do not culminate in 
graduate degrees, Pell Grants are available to graduate students. In 
the vast majority of cases, however, they are awarded only to 
undergraduates. For more information, see U.S. Department of Education, 
``Chapter 1: Student Eligibility,'' in 2003-04 Federal Student Aid 
Handbook: Federal Pell Grant Program, Vol. 3, 2003, at ifap.ed.gov/
sfahandbooks/attachments/0304Vol3Ch1.pdf.
---------------------------------------------------------------------------
    To apply, students must fill out a Free Application for Federal 
Student Aid (FAFSA), which asks for income and asset information. From 
this information, the Department of Education calculates the expected 
family contribution (EFC) toward the student's college expenses, which 
is a portion of family income and assets. The poorest undergraduate 
students have an EFC of $0, which generally qualifies them for the 
maximum Pell Grant of $4,050 for the 2003-2004 academic year. Smaller 
Pell Grant awards are made until the EFC rises above $3,850, at which 
point a student is ineligible.
    As a verification measure, about 30 percent of students who apply 
for federal student aid each year are required to provide tax returns 
or other documents to their school to substantiate the income reported 
on their FAFSA form.\7\ If there is a large discrepancy between tax 
documents and the FAFSA (generally over $400), the FAFSA information is 
corrected to match the tax return and the EFC is recalculated. Students 
who refuse to provide tax documents are denied federal student aid.
---------------------------------------------------------------------------
    \7\ According to the GAO, the Department of Education has verified 
the income and other information of about 30 percent of postsecondary 
aid applicants in every year since the mid-1980s. The department 
focuses on those applicants who, based on past experience, are the most 
likely to submit applications with errors or may be eligible for grants 
rather than just loans.
---------------------------------------------------------------------------
The Extent of Pell Grant Fraud
    There are two basic problems with the existing system. First, there 
is a fairly high incentive to cheat the system. At the same time, 
students can misrepresent their income (or their parents' income) on 
the FAFSA with only a small chance of discovery. The Department of 
Justice and the Department of Education's Office of the Inspector 
General are understandably far more likely to pursue and prosecute 
large cases of student aid abuse rather than individual ones.
    In March 2001, for example, the Inspector General's office charged 
18 parents and eight financial aid advisers with fraudulently obtaining 
$2.6 million in student grants and loans.\8\ More than half of the 
alleged fraud (about $1.4 million) centered on a single financial aid 
consultant. Many of the indicted parents continued to file accurate tax 
returns to the IRS while reporting lower incomes to the Department of 
Education. Many other such large-scale cases have been filed over the 
past few years.
---------------------------------------------------------------------------
    \8\ For more on this case, see Office of Management and Budget, 
``Department of Education,'' in Budget of the U.S. Government: Fiscal 
Year 2003 (Washington, D.C.: U.S. Government Printing Office, 2002), p. 
113, at www.access.gpo.gov/usbudget/fy2003/pdf/bud13.pdf, and press 
release, ``Financial Aid `Preparers' and Parents Among 26 Charged in 
Separate Cases Alleging $2.6 Million in Student Aid Fraud,'' U.S. 
Department of Education, Office of Inspector General, March 16, 2001, 
at www.ed.gov/about/offices/list/oig/invtreports/chi32001.html.
---------------------------------------------------------------------------
    The second problem is verification. Even if the student is one of 
the 30 percent who must verify income, these tax returns come directly 
from the student, not the IRS, so the actual documents could easily be 
altered or made up out of whole cloth.\9\ In the fraud case cited 
above, the financial adviser allegedly manufactured false tax returns 
in the event that one or more of the applications submitted were chosen 
for verification.
---------------------------------------------------------------------------
    \9\ Instead of providing tax returns, students can sign a statement 
indicating that they (and their parents, if applicable) did not earn 
enough money to require filing tax returns.
---------------------------------------------------------------------------
    Although large-amount cases such as this one attract significant 
attention from federal prosecutors and the media, individual student 
small-dollar fraud/overpayments have not been adequately quantified 
until recently. In July 2003, the GAO reported the results of a 
Department of Education statistical project designed to estimate how 
many dollars in Pell Grants are awarded to ineligible students.\10\ It 
found that the Department of Education had made $602 million in Pell 
Grant overpayments between FY 2001 and FY 2002 ($272 million in FY 2001 
and $330 million in FY 2002), representing about 3.3 percent of the 
program funds allocated for grants. Curtailing this fraud would 
effectively increase the amount of money available for needy college 
students by roughly $300 million per year--enough to fund $4,000 Pell 
Grants to 75,000 needy students.
---------------------------------------------------------------------------
    \10\ U.S. General Accounting Office, Taxpayer Information: 
Increased Sharing and Verifying of Information Could Improve 
Education's Award Decisions.
---------------------------------------------------------------------------
    According to the Office of Management and Budget, data sharing to 
reduce fraud and administrative costs could save $638 million per 
year.\11\ The Congressional Budget Office estimates potential savings 
of $2.4 billion over 10 years, or $240 million per year,\12\ and the 
House Committee on Education and the Workforce estimates potential 
savings of $340 million.\13\ Total savings from data sharing, from both 
reduced fraud and reduced administrative waste, could reasonably be 
expected to fall in the range of $300 million to $600 million per year.
---------------------------------------------------------------------------
    \11\ Office of Management and Budget, ``Department of Education,'' 
in Budget of the U.S. Government, Fiscal Year 2004, p. 98.
    \12\ Congressional Budget Office, ``An Evaluation of the Budgetary 
Impact of House Committee Suggestions Submitted for the House Budget 
Committee Print: Addressing Government Waste, Fraud, and Abuse,'' 
November 12, 2003, p. 3, at www.cbo.gov/showdoc.cfm?index=4734& 
sequence=0. The CBO analysis is unclear on this point, but the cost 
savings estimate appears to take into consideration only the fraud 
reduction aspects of the proposal.
    \13\ Press release, ``House Republicans Introduce Bill to Protect 
Disadvantaged Students & Taxpayers Against Pell Grant Fraud,'' 
Committee on Education and the Workforce, U.S. House of 
Representatives, November 25, 2003.
---------------------------------------------------------------------------
Possible Solutions for Curbing Fraud
    The Bush Administration, the GAO, and other agencies have suggested 
that data sharing between the Department of Education and the IRS could 
curb Pell Grant and other student aid abuse, saving taxpayers' money in 
the process. In November 2003, Representative Johnson introduced the 
Student Aid Streamlined Disclosure Act of 2003 (H.R. 3613), which would 
amend section 6103 of the Internal Revenue Code of 1986, authorizing 
the IRS to share limited taxpayer information with the Department of 
Education for the narrow purpose of verifying student eligibility for 
financial aid.
    Such data sharing could work in one of two ways. Under the first 
option, a student (and his or her parents) would sign a release 
authorizing the IRS to release the tax information to the Department of 
Education. The student would then not have to provide the tax return 
information; instead, the IRS would automatically forward the 
information to the Department of Education, thus lessening the 
applicant's burden while also reducing administrative costs.
    The drawback is that under the current system, a student can apply 
for student aid as early as the January prior to the academic year for 
which aid is sought. The IRS typically will not process the returns and 
have them ready until months later. (Indeed, by early January, few 
families would have the W-2s and other documents needed to begin 
assembling their returns). This option would unduly delay grant 
payments to the individual students and colleges.
    A second alternative, which H.R. 3613 favors, would still require 
the student's family to submit the same tax information, but the 
information would be verified later in the year. Since Pell Grants 
typically are disbursed in two payments--for the fall and spring 
semesters--verification could probably be completed before the spring 
disbursement. If a student provided faulty information to the 
Department of Education, it would likely be caught during this audit 
period, and the Federal Government could reduce or eliminate the spring 
grant payment as needed. In the case of fraudulently obtained grants, 
the Department of Education could more easily extract repayment or levy 
civil or criminal penalties, if warranted.
    The Higher Education Act of 1998 provided for such increased data 
sharing, but this could not be fully realized because the Internal 
Revenue Code was not also amended to allow data sharing.\14\ H.R. 3613 
would amend section 6103 of the Internal Revenue Code to allow such 
data sharing between the IRS and the Department of Education. However, 
even if H.R. 3613 were enacted, next year's reauthorization of the 
Higher Education Act would still need a provision continuing this kind 
of data sharing.
---------------------------------------------------------------------------
    \14\ For commentary on this point, see U.S. General Accounting 
Office, Taxpayer Information: Increased Sharing and Verifying of 
Information Could Improve Education's Award Decisions, pp. 2-3.
---------------------------------------------------------------------------
Privacy Concerns
    Opponents of this kind of data sharing have raised privacy concerns 
that, generally speaking, center on the government's ability to keep 
private data, such as tax information, confidential. As the argument 
contends, opening up IRS data to other agencies increases the chances 
that confidential tax data will be released to unauthorized 
individuals.
    The IRS already shares tax data on a limited basis with the 
Department of Education, which appears to have a good track record in 
maintaining confidentiality. The Income Contingent Repayment (ICR) 
plan, one of the Federal Direct Student Loan repayment options, already 
uses data from the IRS to calculate monthly loan payments.\15\ This 
program allows individuals to pay a percentage of their income toward 
their student loan debt. In most cases, this amount is far less than a 
traditional 10-year student loan repayment schedule, which especially 
benefits recent graduates whose incomes remain fairly low. To 
participate, students must allow the IRS to share their income 
information with the Department of Education. About 100,000 new 
individuals sign up to participate each year.\16\
---------------------------------------------------------------------------
    \15\ This data sharing between the IRS and the Department of 
Education is specifically allowed under the Internal Revenue Code, 
section 6103(l)(13).
    \16\ Beyond the Income Contingent Repayment program, the IRS 
provides the Department of Education with a list of last known 
addresses for those who default on their student loans. Under this 
program, known as the Taxpayer Address Request program, the IRS 
forwards approximately 4.6 million addresses to the Department of 
Education each year.
---------------------------------------------------------------------------
    About a year ago, a small-scale pilot program of less than 150 
applicants selected into the verification program asked the applicants 
(and their parents) to allow the IRS to release their tax information 
directly to the Department of Education. This project was intended to 
increase the speed and efficiency of the verification process by taking 
the aid recipient and his or her family out of the process, allowing 
the Department of Education to receive information directly from the 
IRS. According to the GAO, initial feedback from students, parents, and 
the Department of Education was very positive.
    Broadening this data sharing to include all federal student aid 
recipients is a reasonable next step. It would reduce the burden on the 
30 percent of aid applicants who are currently selected for 
verification. This alone would save substantial time and money by 
reducing fraud, limiting the applicants' burden, and streamlining 
administrative costs.
    Finally, and perhaps most important, restricting data sharing to 
the narrow purpose of verifying information that student aid applicants 
provide should ease privacy concerns because the only data the IRS 
would be sharing with the Department of Education are data that the 
department already receives directly from applicants under current law.
What Congress Should Do
    Data sharing is a viable way to rid the Pell Grant and other 
student aid programs of waste and abuse. The General Accounting Office, 
the House Education and the Workforce Committee, and the Office of 
Management and Budget estimate that data sharing between the IRS and 
the Department of Education could realize savings of roughly $300 
million per year in reduced fraud and total savings of as much as $638 
million per year. To achieve this, Congress should:

     LMaintain the provision in the 1998 reauthorization of the 
Higher Education Act that allows increased data sharing between the IRS 
and the Department of Education.
     LAmend section 6103 of the Internal Revenue Code to allow 
data sharing between the IRS and the Department of Education for the 
narrow purpose of verifying postsecondary student eligibility for 
federal aid.
     LContinue to penalize students who grossly misrepresent 
their resources in order to secure higher amounts of federal student 
aid, forcing repayment and assessing fines as warranted.

    These simple measures are an easy way for Congress to reduce fraud, 
increase the funding available to low-income students, and streamline a 
large part of America's postsecondary student aid system.
                               __________
    Members of The Heritage Foundation staff testify as individuals 
discussing their own independent research. The views expressed are 
their own, and do not reflect an institutional position for The 
Heritage Foundation or its board of trustees.

                                 
Statement of Rachel Brinkley, Maryland Association of Student Financial 
                  Aid Administrators, Arnold, Maryland
Internal Revenue Service and Department of Education Data Sharing_Is It 
                              a Mis-Match?
    Verification, as defined by the U.S. Department of Education's 
(DOE) Student Financial Aid Handbook is required because ``. . . 
students sometimes make significant errors on their application.'' 
Recent statements released by the U.S. General Accounting Office (GAO), 
state that fraud accounted for approximately $300 million of the more 
than $11 billion in funds--or just over 3 percent of the program 
dollars per year.
    The Financial Aid Community has been eagerly anticipating the 
elimination of the U.S. Department of Education mandated process known 
as ``Verification.'' Schools have labored for years to help students 
accurately apply for need-based aid through the federal methodology 
enacted by Congress. For this process, schools have been required to 
collect federal tax information (manually, via paper submission 
process) to verify the data elements provided by students and parents 
on the Free Application for Federal Student Aid (FAFSA). I think it is 
safe to say that the last `enhancement' to happen to Verification was 
the fax machine!
    The FAFSA is the cornerstone application of federal aid programs, 
including Federal Pell Grant, Federal SEOG Grant, Federal Work-Study, 
and Federal Perkins Loans, and Stafford Student and Parent PLUS loans. 
In addition, many state agencies, postsecondary institutions and 
outside private agencies rely on the FAFSA results--the Student Aid 
Report--to best determine who should receive limited gift and self-help 
aid via a number known as the Expected Family Contribution (EFC).
    I applaud Representative Sam Johnson (R-TX) for introducing the 
Student Aid Streamlined Disclosure Act of 2003 (H.R. 3613), which would 
amend section 6103 of the Internal Revenue Code of 1986. Authorizing 
the IRS to share limited taxpayer information with the U.S. Department 
of Education--at the onset--seems to be a win for all parties involved. 
Unfortunately, fraud and abuse do exist in most federal programs. Why 
should the Federal Pell Grant program be immune from those trying to 
cheat the system? Additionally, most parties involved would support any 
change that saves time, money, and resources. However, if enacted as 
written, the process currently being proposed by the U.S. Department of 
Education would result in a ``mismatch'' for the financial aid 
process--and as a result, would create a larger burden on everyone 
involved with the financial aid process.
Potential Pitfalls with the Proposed Match

    1. LThe IRS Data Match Only (vaguely) Verifies Two of The Federally 
Mandated Five Items.

    Currently, regulations require that schools verify five main 
elements when determining a student's EFC. These elements are: adjusted 
gross income, federal taxes paid, untaxed income, number in household, 
and number in said household who are attending college. The proposed 
legislation would only examine two elements: adjusted gross income and 
federal taxes paid. These two verification elements, in many cases, are 
not the greatest factor in determining the EFC. In many situations, the 
number of people in the student's household, or the number going to 
college has a greater impact on determining the EFC. Additionally, 
untaxed income (such as Social Security, Disability, Child Support 
Received) can also have a significant impact on determining the EFC. 
When I posed the possibility of data match with Social Security for 
Untaxed Income at a recent DOE Electronic Access Conference open forum 
on this topic, I was told, ``. . . We haven't got that far yet.'' I was 
also surprised to hear that the match results, when provided to 
schools, would only divulge that a mis-match had occurred, and would 
not share the correct data element with the schools. Schools would 
still need to collect the `correct' data from the students via paper 
tax form submission. Why introduce a match that only covers 40% of the 
required process, does not share the correct answers to the 40% it does 
provide, and puts the student and school through a second paper 
collection process in the end?

    2. LThe IRS Data Match Doesn't Address Potential Problems with IRS.

    The notion that conducting a DOE/IRS database match will eliminate 
fraud and abuse fails to recognize that when there is a will, there is 
a way. A student need simply file all zeros in the parent Social 
Security field to skip the IRS data match. Or, a student could provide 
the valid Name, Date of Birth, and Social Security Number of someone 
other than the required custodial parent to obtain a `clean' match 
result. Additionally, the proposed match doesn't address multitude of 
filing options (married, single, head of household, married filing 
joint) that students and parents (often on the advice of tax 
professionals) file. How would the match work for the married couple 
filing separate? How about the married couple that each incorrectly 
files head of household? To ultimately reduce fraud and abuse, DOE 
should examine any potential fraud and abuse occurring with the federal 
tax form. I won't even venture down the road of what would happen when 
a student applies and is being raised by a non-biological parent--such 
as a grandparent or sibling . . .

    3. LThe IRS Data Match Will Increase the Work Load at Schools--and 
Subsequently the Frustration Level of Students.

    The proposed DOE/IRS database match poses serious difficultly with 
regard to timing and logistics. Most financial aid applicants must file 
their FAFSA before the April 15th tax filing deadline to maximize their 
potential for limited need-based aid. Even if the majority of the 
student aid applicants (and parents) filed by the April 15th tax-filing 
deadline, it would undoubtedly take the IRS time to process all tax 
submissions at the various locations around the United States. The IRS 
would then pass this information to DOE, who would then match it 
against financial aid applicants on file thus far. DOE would then send 
the schools a list of mis-matched students in late summer. This is peak 
processing season for most college sectors, which may have already 
reviewed a student's file and disbursed aid to the student's account. 
If the student has not yet had their file reviewed/disbursed, it is the 
worst time of year for both a student and a school to receive increased 
workload from DOE. This process will force many schools to conduct 100% 
verification--in some fashion--in response to the alternative. 
Increased workload on the financial aid professionals and their 
institutions will bring about increased costs of additional long term 
and/or temporary staff, computing enhancements and Information 
Technology resources, and hourly costs associated with personnel. 
Schools unable to absorb the cost associated with necessary 
enhancements will see delivery timeframes slowed, which in turn will 
delay the timely delivery of funds to students.

    4. LThe IRS Data Match Doesn't Give Credit to the Financial Aid 
Profession.

    The vast majority of Financial Aid Professionals around the country 
have been working diligently to see that only the eligible students 
receive gift aid. We verify, and re-verify, those students selected by 
DOE. We also select and re-select many students who were unexplainably 
overlooked by the DOE selection process. Many schools often conduct 
100% verification prior to making financial aid award offers--to be 
certain that only the eligible students are receiving funding. Perhaps 
the rate would be much higher than 3% if it weren't for the diligence 
on the part of financial aid professionals. I'd be interested to know 
what the fraud rate is for other federal programs.
    In closing, I think we, as a financial aid community must continue 
to advocate for positive changes to a complex system. I am not denying 
that fraud and abuse exist. I have considered myself a `gatekeeper' of 
federal funding for over 10 years and have seen errors that appear to 
be intentional along with those that were simply honest mistakes due to 
the complex nature of the process involved. However, I don't feel the 
current approach proposed is the answer. If we are going to do 
something, let's do it all the way and right the first time to benefit 
everyone involved. I don't want to see the estimated $300 million in 
savings shift costs from the federal government to schools and 
students. As we approach what may already be inevitable, I am 
constantly reminded of the life lesson told to us by many of our 
parents, ``Be careful what you wish for, it might just come true.''

                                 

       National Association of Student Financial Aid Administrators
                                               Washington, DC 20036
                                                   January 22, 2004

Representative Amo Houghton
Chairman, Subcommittee on Oversight
Committee on Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Mr. Chairman:

    On behalf of the National Association of Student Financial Aid 
Administrators (NASFAA) representing student financial aid 
administrators at approximately 3,000 postsecondary institutions across 
the nation, we are pleased for the invitation to submit comments on 
H.R. 3613. We appreciate your leadership and that of your cosponsors in 
introducing this legislation which if done correctly will safeguard 
taxpayer interests and reduce administrative burdens on students and 
their families as well as financial aid administrators.
    H.R. 3613, ``The Student Aid Streamlined Disclosure Act of 2003,'' 
proposes to match limited IRS federal income tax items against 
information from the Free Application for Federal Student Aid (FAFSA) 
for all federal student aid applicants. NASFAA has long supported the 
verification of student aid applicant data against information reported 
to the IRS to improve the efficiency and accuracy of the student aid 
process.
    However, as currently structured, we have serious reservations 
about whether H.R. 3613 will accomplish this goal. The major problems 
are:

    1. LThe five IRS verification items included in the bill do not 
fully align with the verification items stated in section 484(q) of the 
Higher Education Act.
    2. LThe Department of Education is unable to share the actual IRS 
reported data with its contractor to resolve discrepancies which in 
turn creates unnecessary additional steps in the resolution process 
that are costly, burdensome, and inefficient.
    3. LThe roughly 1,800 institutions that use third party servicers 
to assist with their financial aid processing are prohibited from 
sharing discrepant data with their servicers to make necessary 
corrections.
    4. LWe always have understood that some disruption in the normal 
aid processing cycle would occur because the IRS match results would 
not be available until after the start of the July 1 award year. 
However, the restrictions and requirements imposed by the bill as 
written will result in significant delays and duplicative reprocessing 
that will be detrimental to achieving the purposes of the federal 
financial aid programs.

    While we have a number of other questions and concerns, we believe 
that significant modifications to H.R. 3613 are necessary to permit a 
smoothly functioning process for everyone affected. In an ideal system, 
the Department of Education should receive and reprocess--through its 
contractor--all discrepant information and forward corrected output 
documents directly to students and their selected schools. However, at 
a minimum, NASFAA recommends that H.R. 3613 be modified to require a 
limited and representative demonstration program to test the systems 
and processes before full implementation. Such a test program will 
identify problems and issues that need further modification so that a 
nationwide program is successful.
    We respectfully suggest your subcommittee hold a hearing on the 
legislation to explore the ramifications of H.R. 3613 or that a meeting 
of interested parties is organized to serve a similar purpose.

            Sincerely,

                                                      Dallas Martin
                                                          President

                                 

                                           National Taxpayers Union
                                         Alexandria, Virginia 22314
                                                  February 24, 2004

The Honorable Amo Houghton
Chairman
Subcommittee on Oversight
Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman Houghton and Congressman Johnson:

    On behalf of the 350,000 members of National Taxpayers Union (NTU), 
I am pleased to offer our comments and praise for H.R. 3613, the 
``Student Aid Streamlined Disclosure Act'' sponsored by Congressman Sam 
Johnson.
    The incidence of fraud in the Pell Grant program--which the General 
Accounting Office estimated at $600 million during Fiscal Year 2001 and 
Fiscal Year 2002--should greatly concern any cost-conscious 
policymaker. Such concern is only amplified by the fact that Congress 
is facing a budget deficit of more than $500 billion for the current 
Fiscal Year. Fortunately, a disclosure remedy already exists, one whose 
carefully designed reform could yield substantial savings for 
taxpayers.
    Current policy allows the Department of Education to require 
substantiation of income represented on the Free Application for 
Federal Student Aid (FAFSA) form, which could include certain 
information from the applicants' tax returns. As a practical matter, 
however, only 30 percent of FAFSA submissions are routinely subjected 
to this verification process. Worse, government auditors have 
determined that in some cases, FAFSA applicants who were asked to 
provide tax information simply abetted their fraud by concocting 
falsified tax returns.
    H.R. 3613 would address this accountability problem by facilitating 
direct tax information disclosure between the Internal Revenue Service 
(IRS) and the Department of Education. The result would create a 
``cross-check'' against fraud--the tax return data the FAFSA applicant 
submits could be matched against the tax agency's own records.
    As you know, NTU has long supported the sanctity of tax return 
information as a cornerstone of our tax system. Indeed, one reason why 
heavy-handed tax enforcement mechanisms should not be necessary is that 
many citizens comply with the tax law out of assurance that the filing 
information they supply is confidential. We have therefore urged 
extreme caution with measures that would allow wholesale sharing or 
disclosure of tax return data.
    Fortunately, H.R. 3613 takes a prudently targeted approach. The 
bill specifies four well-defined circumstances under which information 
may be verified between the IRS and the Department of Education. The 
legislation further limits the scope of information that may be cross-
checked to five simple items, as well as sets a strict procedure for 
disclosure that should minimize the risk of privacy invasion or 
government ``fishing expeditions.''
    In the final analysis, FAFSA participants voluntarily choose to 
avail themselves of an aid program that puts far from ``voluntary'' 
burdens on American taxpayers. Sound fiscal stewardship, not to mention 
this moral obligation to taxpayers, calls for a verification process 
that reduces the potential for fraud while limiting the potential for 
government abuse of information. Enactment of H.R. 3613 would amply and 
admirably provide this balance.

            Sincerely,

                                                          Pete Sepp
                                  Vice President for Communications

                                 
                    [BY PERMISSION OF THE CHAIRMAN:]

    Puerto Rico Association of Student Financial Aid Administrators
                                   San Juan, Puerto Rico 00936-8250
                                                   January 22, 2004

Representative Amo Houghton
Chairman, Subcommittee on Oversight
Committee on Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Mr. Chairman:

    On behalf of the Puerto Rico Association of Student Financial Aid 
Administrators (PRASFAA) representing more than 600 student financial 
aid administrators, in Puerto Rico we are pleased to submit our 
comments on H.R. 3613. As Student Aid Administrators we recognize the 
effort and your leadership in introducing this legislation.
    The H.R. 3613 the ``Student Aid Streamlined Disclosure Act of 
2003'' proposes to match IRS federal income tax data against the 
information on the Free Application for Federal Student Aid (FAFSA) for 
all federal student aid applicants. It is important to bring to your 
attention that in the Commonwealth of Puerto Rico, we do not file 
federal taxes. There are specific regulatory dispositions in the Title 
IV programs that permit the use of the Puerto Rico tax system 
information as the basis for completing and providing the income and 
tax responsibility of the residents and taxpayers of Puerto Rico, when 
the Free Application for Federal Student Aid (FAFSA) is submitted for 
processing.
    If the proposed H.R. 3613 the ``Student Aid Streamlined Disclosure 
Act of 2003'' intends to match the information between the federal IRS 
system and the Free Application for Federal Student Aid (FAFSA), has 
the bill contemplated the processing of the Puerto Rico tax system 
information?
    There are two basic options to deal with this condition.

     LTo exclude PR from the match process.
     LTo approach the Puerto Rico government to explore the 
possibility to integrate the Puerto Rico tax system to the match 
process.

    We urge you and your cosponsors to consider this dimension not 
contemplated when the bill was conceptualized.
    The Puerto Rico Association of Student Financial Aid Administrators 
is willing to assist you to explore possibilities and to provide the 
necessary information to assure that in the process our students and 
families do not be affected by the implementation of this bill.

            Sincerely,

                                                       Luis Aquiles
                                                          President
                                 
            Statement of Su A. Saunders, Martins Ferry, Ohio
    I am a former Financial Aid Director and former President of the 
West Virginia Association of Student Financial Aid Administrators. I am 
also, of course, a taxpayer. Currently I am employed by the Internal 
Revenue Service Martinsburg Computing Center in West Virginia.
    I whole-heartedly support H.R. 3613 and feel that verifying income 
information of federal student aid applicants with IRS data is long 
overdue. There are, from an aid standpoint, three compelling rationales 
for moving forward with this initiative and one compelling IRS 
rationale.
    First, from an aid perspective, students and parents find the 
instructions confusing and overwhelming. They often feel that the 
college aid administrator is personally conspiring to keep aid from 
them and think there are secret loopholes that will lead to more aid.
    An income match with IRS data will emphasize the ``Federal'' in the 
Free Application for Federal Student Aid. Students and families will 
realize that it really is an impartial method of accessing eligibility 
for need-based Federal assistance and that there are no secret 
loopholes to FAFSA filing.
    Second, the possibilities for simplifying and streamlining the 
application exist. Instead of asking for data from numerous lines on an 
individual's 1040 tax return, only a few key lines will need to be 
reported in order to insure that the proper match is being made; once 
the match is made with the proper 1040, all the needed elements can be 
extracted.
    Third, the savings cannot be stressed enough. While confusion and 
complexity lead to much misreported data, there exists--unfortunately, 
in the current paper verification process--the ability for families to 
commit fraud in order to increase aid eligibility. Under reporting of 
income and submitting fraudulent copies of 1040s are not all that 
uncommon in the paper verification process.
    From an IRS standpoint, because aid application deadlines are 
generally early in the year, for example, March 1st, it encourages 
families of college aid applicants to file their income tax forms 
early.
    I would not even be averse to using tax dollars to give an 
incentive to people to file their federal income tax returns early. An 
incentive might be in the form of a credit, for example.
    I am very cognizant of the need to protect the confidentiality of 
taxpayer records but, when taxpayers desire to benefit from Federal 
assistance programs such as need-based financial aid, they should have 
no reluctance in signing a release to have official income data used to 
determine their eligibility for such assistance.
    When only the truly eligible applicants receive federal assistance, 
the integrity of all taxpayers and their data are well served.
    Thank you for the opportunity to comment on this important issue.

                                 
Statement of Robert T. Collins, University of Phoenix, Phoenix, Arizona
    My name is Bob Collins and I am the Vice President of Student 
Financial Aid for the University of Phoenix. I have been working in 
student financial aid administration for over 23 years in various 
institution types and sizes. I applaud you for taking the important 
first step in streamlining the federal student aid application process 
with your proposals in H.R. 3613. I have a few recommendations to 
improve the process even more.
    Allow me to write candidly as a conscious stream of thought. The 
current application process is such that the Free Application for 
Federal Student Aid (FAFSA) is available on January 1st of the calendar 
year for the upcoming July to June award year. For many families, this 
timeframe is necessary so traditional schools can make award offers to 
entering freshman early enough for the student and parents to decide on 
which college to attend. Oftentimes, admissions decisions are made on 
the basis of ``out of pocket'' expenses. Regardless, the fact is, the 
FAFSA timeline does not synchronize with the IRS timelines. At best, 
the majority of income tax filings (excluding extensions) will be 
available for data matching in early to mid summer making the FAFSA a 
two part application for a significant number of families that apply 
early (applicant estimates early then IRS post screens data for 
accuracy in summer). A possible solution to this problem is to utilize 
prior-prior year income when calculating an expected family 
contribution. Professional aid administrators have bantered about this 
idea for well over five years and I, for one, do not understand why the 
government would not adopt this concept. I believe research will prove 
that expected family contribution does not vary substantially from year 
to year. In situations where income does fluctuate considerably, 
schools could utilize current professional judgment provisions to 
reexamine aid eligibility. If we used prior-prior year income, the 
Treasury database would be most accurate and available in January. In 
fact, we could eliminate over 20 questions on the FAFSA by not asking 
for income information at all. Simply obtain the personal identifier 
information and authorizations of the appropriate applicants (student/
parent(s)/stepparent) on the FAFSA and have the federal contractor 
calculate the family contribution and pass the outcome number to the 
school. In this scenario, the applicants do not have to struggle with 
answering unnecessary questions and the income information would be 
held in strictest privacy.
    For an even more radical reform, by using history of Treasury data, 
we could trend income information of the family over many years to 
determine an average expected family contribution that could be used 
for up to 4 years of aid eligibility. A student applies for admission 
to college once. Maybe the family need only apply for financial aid 
once? Another piece of legislation (H.R. 2956) requests the Advisory 
Committee on Student Financial Assistance to conduct a thorough study 
of how the need analysis model in HEA could be simplified. Perhaps this 
dialogue can be continued in that forum. Only to say, be cognizant of 
other data mining potential when crafting the statute so as not to 
restrict future database matching opportunities.
    Alternatively, to advance your proposal in a timely manner 
(assuming prior year income is the preferred need analysis 
methodology), at a minimum, we should increase the scope of data 
elements to include all FAFSA questions with reference to the tax 
return such as untaxed income and income exclusions (i.e. worksheets A, 
B, C). Additionally, the proposal falls short by not actually 
correcting the data fields but merely reporting an error with a nominal 
tolerance level. Under the current proposal, if schools get a notice of 
an incorrect data field, especially so close to the start of the 
traditional fall semester, many aid administrators will ask for tax 
information to ensure accuracy before making a revised award offer. 
Otherwise we get caught in a game of back and forth with the central 
processing system causing even more delays to aid delivery. Hence, no 
gain on the protection and privacy of tax returns.
    The most promising aspect in the short term is to simply update the 
FAFSA with the accurate information from Treasury of all the required 
IRS data elements. Under this modified proposal, we still have not 
eliminated the two part application process for early applications, but 
at least FAFSA applications submitted after the Treasury database is 
complete and updated in the summer could follow a somewhat real time 
database match process. Nonetheless, these are significant improvements 
that would streamline the process and protect taxpayer information.
    I appreciate the opportunity to comment on such an innovative 
process that is most beneficial to families, schools and taxpayers for 
multiple reasons (fiduciary responsibilities and privacy). Do not 
hesitate to contact me if you need any additional information.

                                 

        Western Association of Student Financial Aid Administrators
                                                   January 19, 2004

Chairman Amo Houghton
Subcommittee on Oversight
Committee on Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Congressman Houghton:

    The Western Association of Student Financial Aid Administrators 
(WASFAA) is a professional organization whose mission is to promote 
student financial aid and educational opportunities for students. There 
are approximately 1,200 members who are student financial aid 
professionals from Alaska, Arizona, California, Idaho, Nevada, Oregon, 
Washington, Hawaii, Guam, the Northern Marianas Islands and the Freely 
Associated Nations of the Pacific.
    On behalf of WASFAA, we would like to respond to your request for 
comments on H.R. 3613, the ``Student Aid Streamlined Disclosure Act of 
2003.'' As financial aid administrators we appreciate the efforts to 
simplify the verification process and obtain more accurate income 
information. However we would like to bring your attention to some of 
the issues and affects of the timing and provisions of H.R. 3613.

Students and their parents will no longer be required to provide copies 
of Form 1040 or blanket waivers of tax confidentiality in order to 
obtain a student loan or grant.

    The five data elements that will be matched (AGI, filing status, 
total earnings from employment, federal tax liability and type of tax 
return filed) does not give sufficient information to determine 
eligibility for federal student aid. Missing elements include the data 
necessary to determine the family size, the number in college and 
untaxed income. These three items are part of the federal needs 
analysis formula and necessary to calculate the Expected Family 
Contribution (EFC).
    Schools should have the option to request actual tax forms. The AGI 
does not always provide an accurate financial picture. High interest 
income, dividends or business deductions can provide data that will 
negate a low AGI.

Recommendation #1: Permit schools to request actual tax forms.

Verification of income by use of the IRS match will better protect 
taxpayer privacy.

    There are regulations in place that provide for the confidentiality 
and safekeeping of all financial aid documents. These include the 
applicable Department of Education rules including the Safeguard 
Procedures Report and FERPA rules that must be followed.

Recommendation #2: Continue to partner with schools to ensure 
safekeeping of documents.

Applicants often prepare their applications in January or February, 
before their tax returns are filed.

    Timing is an important issue since it has been projected that the 
IRS match results will not be available until very late in the award 
year. It has been recommended that financial aid administrators start 
to educate students and families that the application for financial aid 
will now be a ``two-step'' process. The FAFSA will be filled out with 
estimated data prior to filing the 1040. A second step will require 
that the FAFSA be updated and resubmitted after the actual 1040 data is 
available. This adds complications to a process that deter some 
students and families from applying.
    Students may be further confused by the possibility that the needs 
analysis and awarding process will be repeated twice and result in very 
different award amounts that they have budgeted for covering 
educational expenses.

Recommendation #3: Allow schools that choose to request income tax 
forms from their entire population to do so to avoid a disruption of 
the delivery system and ensure correct initial packaging.

The taxpayer identity information will include the filing status of 
that taxpayer.

    The FAFSA requires students to report their marital status ``as of 
today.'' This may or may not be reflected in the IRS definition and 
status listed on the tax form.

Recommendation #4: Retain the current verification process.

The material discrepancy means a difference between such sets of not 
less than the greater of $100 or 1 percent of the item shown on the 
return.

    If this is the amount that a C Code or Reject Code will be applied, 
it will place undue burden on the needs analysis system. Present 
regulations require recalculation of the Expected Family Contribution 
only if the difference between the reported AGI and taxes paid and the 
actual AGI and taxes paid differs by $800. This is a more reasonable 
dollar amount since fluctuations of $100 will not usually result in a 
change of the EFC so therefore should not be flagged as a discrepancy 
requiring correction.

Recommendation #5: Retain the current tolerance limits.

Discrepancies may only be redisclosed to the individual whose 
information is discrepant and to the Department of Justice, and not the 
officers and employees of institutions of higher education.

    It would be very helpful for financial aid administrators to assist 
students and families in correction if the type of discrepancy noted is 
communicated. If the discrepancy is a monetary amount it would be 
extremely helpful to have the actual figures otherwise it is like a 
verification flag received late in the awarding year, with no actual 
factors to redeem the problem.

Recommendation #6: Same as #1, permit schools to request actual tax 
forms.

    We are excited that the IRS match provided in H.R. 3613 may provide 
additional Pell Grant funds to the truly needy students by correcting 
overpayments and underpayments to students and families. The Pell Grant 
program has been enormously successful in promoting the goals of 
quality, access and affordability. The program is fundamentally sound 
and should be continued and expanded. We appreciate the continued 
commitment to America's neediest college students.

            Sincerely,

                                                      Kate Peterson
                                                          President

                                                          Tami Sato
                                               Federal Issues Chair

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