COVID-19 Relief Checks Could Put College Students’ Financial Aid At Risk

At the peak of the COVID-19 pandemic, approximately one in four U.S. workers relied on unemployment benefits, according to the Century Foundation.

Boosted unemployment checks helped keep many families above water during the worst of the pandemic’s effects on the labor market, long enough for civilian unemployment to return to pre-pandemic levels, according to the Bureau of Labor Statistics. However, families applying for federal financial aid for the upcoming academic year could soon find that those checks may have an adverse impact on the size of their aid.

There is a way to avoid decreased financial aid awards. That solution, however, requires additional paperwork from students and their families. Here’s what college students filling out their Free Application for Federal Student Aid (FAFSA) forms need to know.

Normal unemployment benefits don’t generally have a drastic impact on financial aid applications due to the relatively small amounts people receive.

However, during the pandemic, the federal government increased the size of unemployment checks to keep people from falling behind on bills. The Federal Pandemic Unemployment Compensation program offered an additional $600 per week from March 29, 2020, to July 25, 2020, and an extra $300 a week from Dec. 27, 2020, to Sept. 4, 2021, on top of what individual states awarded.

The additional federal contribution was oftentimes more than double or triple whatever the state paid, depending on the state.

That drastic increase in payouts is sure to lead to drastic increases in the expected family contribution (EFC) calculation. The EFC is determined when a current or prospective student fills out their FAFSA form. The FAFSA for the 2022-2023 school year will use earnings data from the 2020 fiscal year.

Considering the federal unemployment supplement didn’t end nationally until early September 2021, some individuals enjoyed nearly half a year of enhanced benefits totaling over $10,000. That amount doesn’t include non-federal unemployment benefits or benefits accrued past early September.

They can have a sizeable impact on EFC.

Dave Moniz, vice president of external affairs at Bottom Line, told BestColleges the government has already approved a workaround for students.

First, students and their parents or guardians should fill out the FAFSA as they normally would. Report all income from 2020, including unemployment benefits. Moniz suggests students should also collect documentation from all unemployment received, including account records and unemployment verification letters.

The college or university will process that application and issue an initial award amount.

The federal government’s solution is to not count the first $10,200 in unemployment compensation for tax year 2020. Moniz said financial aid administrators can’t see the source of income when reviewing a form and thus will not be able to automatically apply this federal rule.

Therefore, the onus is on students and their families to follow up with an appeal to their university’s financial aid office. The appeal should detail how much they or their parents or guardians received in unemployment and for how long.

Moniz added that the federal government’s guidelines state a school will not be penalized for revising a higher-than-normal amount of student aid applications for this upcoming school year precisely because of this new rule. There shouldn’t be an issue so long as a student provides plenty of documentation.

Moniz applauded the federal government for thinking ahead and acknowledging how increased unemployment benefits may overestimate an EFC and therefore hold students back from higher Pell Grants or other aid awards.

However, the solution is far from perfect.

The biggest issue is that most students don’t know they need to file an appeals letter with their school.

“I’ve been working with people on the policy side that feel that [the Department of Education] has to continue to push this information out, partly because everybody is stretched thin and busy,” Moniz said.

Additionally, schools aren’t going out of their way to inform students about this additional step.

“Generally speaking most colleges are prepared to make adjustments, but they don’t want to deal with a flood of appeals letters that aren’t eligible from people who just want a better package,” Moniz added.

He said it is impossible to predict how many students will lose out on benefits because of the additional step. However, he conceded it’ll likely be a non-negligible amount who won’t get the full federal student aid they are entitled to.