Education Could Benefit from Access to Taxpayer Information to Verify Student Eligibility for Financial Aid Programs

Education uses taxpayer information for some eligibility determinations  and other purposes, but is not authorized to directly receive taxpayer  information from IRS to verify student financial aid eligibility or determine  payment amounts for its federal student aid programs—due to IRC Section  6103 restrictions. Using aggregate IRS income information,  Education estimates that $602 million in grant overpayments occurred  during this time. Education also uses these  data in researching and computing statistical data on overall borrower  debt, such as determining the average and median debt burden ratios for  any given year. Approximately 11.4 million individuals applied for over $50 billion in  federal student financial aid in academic year 2001-02. According to Education officials, a 1998 amendment to HEA  was intended to authorize the matching of student aid applicant  information with several elements of federal income tax return  information. However, that provision could not be used as intended  because IRC Section 6103 was not specifically amended so that Education  and its contractors, which assist Education in administering the various  financial aid programs, could have access to taxpayer information. IRS Does Not Use Education’s Student Aid Data and the Potential Benefit of Doing So Appears to Be Limited

IRS does not use personal information from applicants that Education  collects and maintains to ensure that taxpayers meet their tax obligations  because IRS officials believe the taxpayer information IRS receives is  more accurate. In general, IRS officials’ views are supported by its past  estimates of taxpayers’ levels of compliance and by the results of  Education studies and investigations. For example, in the mid-1990s, IRS estimated that taxpayers  with only wage income had a 99 percent voluntary reporting compliance  rate, and taxpayers with interest and dividend income were 95 percent  compliant in reporting this income. The student aid applications ask students and/or their  parents to report income information directly from their tax returns and  generally do not ask for other corroboration of income. To determine whether Education uses IRS taxpayer information to verify  information provided by applicants for federal student aid and the benefits  of increasing verification activities, we analyzed the student financial aid  application and determined what personal information Education collects  from applicants. To determine whether IRS uses personal information maintained by  Education to ensure that taxpayers meet their tax obligations and the  benefits of increasing such activities, we collected data to determine what  personal information IRS obtains from Education.
Why GAO Did This Study

Data sharing can be a valuable tool for federal agencies in determining applicants' eligibility for benefit and loan programs. Congress has authorized the Department of Education, among others, to have limited access to federal taxpayer information collected by the Internal Revenue Service (IRS). Likewise, IRS is able to use personal information collected by outside sources to better ensure that taxpayers are meeting their tax obligations. GAO was asked to determine whether Education uses taxpayer information to verify information provided by student aid applicants, and the benefits of increasing data verification activities, and whether IRS uses personal information maintained by Education to ensure that taxpayers meet their tax obligations, and the benefits of increasing these activities.

What GAO Found

Education uses taxpayer information for several purposes, such as locating loan defaulters; researching and computing statistical data on overall borrower debt; and, upon taxpayers' consent, determining loan repayment amounts. However, Education is not authorized to directly receive taxpayer information from IRS to verify eligibility for student financial aid provided under Title IV of the Higher Education Act of 1965 (HEA). In academic year 2001-02, 11.4 million students applied for $54 billion in aid. A 1998 amendment to HEA was intended to authorize the matching of student aid applicant information with several elements of federal income tax return information. However, HEA could not be used as intended because Internal Revenue Code Section 6103 was not specifically amended so that Education and its contractors, which assist Education in administering the various financial aid programs, could have access to taxpayer information. Based on a study that matched Education data and IRS income information, Education estimates that it made approximately $602 million in grant overpayments during fiscal years 2001 and 2002. IRS does not use personal information collected from applicants and maintained by Education to ensure that taxpayers meet their tax obligations because IRS officials believe the taxpayer information IRS receives is more accurate. In general, IRS officials' views are supported by IRS's past estimates of taxpayers' levels of compliance and by the results of Education's studies and investigations. For example, in the mid-1990s, IRS estimated that taxpayers with only wage income had a 99 percent voluntary compliance rate and taxpayers with interest and dividend income were 95 percent compliant in reporting this income. However, Education's student aid application data are not suited to IRS's tax administration purposes because the applications ask students and/or their parents to report data that come directly from their tax returns.