Why Does FAFSA Use Old Taxes? What Applicants Need to Know

The Free Application for Federal Student Aid (FAFSA) helps students secure financial assistance for higher education. This application gathers financial information to determine eligibility for various forms of federal, state, and institutional aid, including grants, scholarships, work-study programs, and student loans.

Defining the Prior-Prior Year

The FAFSA uses the “prior-prior year” for income reporting. This means that for a given academic year’s FAFSA, applicants must provide income information from two years prior to the start of that academic year. For example, the 2025-2026 FAFSA application requires financial data from the 2023 tax year.

This specific tax year’s data, which includes completed and filed tax returns, is the basis for calculating a student’s aid eligibility. This refers to actual tax filings, not estimated income.

Rationale Behind the Prior-Prior Year Policy

The Department of Education implemented the prior-prior year policy to streamline the financial aid application process and benefit applicants. This allows the FAFSA application to open earlier, providing families more time to complete the application and receive aid offers. This enables better financial planning for college costs.

Utilizing older tax data means applicants can use already-filed and accurate tax returns, eliminating the need for income estimates. This reduces errors and the burden of updating information later. The IRS Direct Data Exchange further simplifies this by allowing direct and secure transfer of tax information from the IRS into the FAFSA. This direct transfer reduces errors and the need for financial aid offices to verify reported income, making the process more efficient for both students and administrators.

Handling Income Changes

If a financial situation has significantly changed since the prior-prior tax year, the FAFSA may not accurately reflect current ability to pay. In such cases, colleges have a process known as “Special Circumstances” or “Professional Judgment” that financial aid administrators can use. This allows for adjustments to a student’s financial aid eligibility based on documented changes.

Students facing a substantial reduction in income should contact the financial aid office at the colleges they are considering. Common situations that might qualify for a professional judgment review include job loss, significant income reduction, divorce or separation, death of a parent or spouse, or exceptionally high unreimbursed medical expenses. Documentation will be required to support the claim, such as severance letters, unemployment statements, medical bills, or divorce decrees. This review is conducted by the financial aid office on a case-by-case basis, and approval for an adjustment is not guaranteed.