IRS Shuts Down Financial Aid Tool Over Security Concerns

College students, families can work around the outage, but it may dissuade some applicants

Applying for college aid just got more complicated. Applying for college aid just got more complicated.

There is more March Madness than what’s taking place on college basketball courts this spring.

Students are hearing from universities about admissions and applying for financial aid. But this process is being complicated by the Internal Revenue Service’s decision to shut down a tool that automatically links tax information with financial aid forms.

According to the Department of Education, the IRS decided in early-March “to temporarily suspend the Data Retrieval Tool (DRT) as a precautionary step following concerns that information from the tool could potentially be misused by identity thieves.”

“I do not think this is going to be much of a holdup for students in terms of financial aid. The state financial aid agencies were aware of this early on, and the federal government is aware of the delay with the DRT tool,” said Troy Onink, CEO of Stratagee, a college planning service that works with financial advisors and broker-dealers, in an interview.

Both state and federal organizations, as well as colleges “are not going to hold rigid to their deadlines,” Onink explained.

“The way this should play out [means] student aid awards are not likely to be affected. But it will be a bit longer process than normal in terms of submitting information and getting awards,” added the CEO of Stratagee, which runs the College InSource Partner Program with Cambridge and other BDs.

Others financial professionals agree.

“The glitch seems to have little to no impact on financial aid application functionality, except that tax return information must be entered manually for a few weeks,” said Phil Collier, an accredited wealth management advisor and product manager of 529 plans for Raymond James Private Client Group, in a statement.

Broader Issues

For groups helping large numbers of students, however, the concern is that the need to manually enter information will discourage and possibly hold back some individuals from applying for aid and even attending college.

Last week, members of the National Association of Student Financial Aid Administrators met with members of Congress to discuss both the continued outage of the IRS Data Retrieval Tool and potential budget cuts to federal student aid programs.

Karen Stinnett of Samford University in Alabama talked to legislators about the continued outage of the IRS DRT and described what NASFAA sees as “the far-reaching consequences of the outage.”

Each year, close to 20 million students complete the Free Application for Federal Student Aid.

“We tried to explain to [the legislators] the importance and the impact that it’s going to have on both our families, as well as financial aid administrators – the extra administrative burden in the office, as well as the lack of ease, the lack of simplification that will result for families,” according to a NASFAA report.

Also last week, several congressional leaders asked Education Secretary Betsy DeVos to “provide more information on the circumstances surrounding the IRS Data Retrieval Tool outage,” the groups says, adding that one lawmaker has been told the tool could be “back up and running this month.”

Rep. Lloyd Doggett, D-Texas, spoke with The Wall Street Journal about “criminal activity” affecting the IRS and an investigation that has been started by the Treasury Inspector General for Tax Administration.

“The IRS is where the problem lies,” Onick said. “There are some security breaches every year, which are not the colleges' fault.”

Reprints Discuss this story
We welcome your thoughts. Please allow time for your contribution to be approved and posted. Thank you.

Related

Morgan Stanley Takes $70M Charge for Tax-Reporting Errors

The wirehouse said the tax-reporting issues affected wealth management clients from 2011 to 2016.

Most Recent Videos

Video Library ››