Can We Reduce Or Zero Out Unemployment Compensation and Income Earned From Work Using Professional Judgment?

Yes. Section 479A(a) and (c) of the Higher Education Act of 1965 (HEA), as amended, [20 USC 1087TT] gives the financial aid administrator the authority to use professional judgment (PJ) in special circumstances and on a case-by-case basis to adjust any data element used in the calculation of the student's expected family contribution (EFC) or cost of attendance (COA). Therefore, you don't need U.S. Department of Education (ED) guidance or permission, or a Dear Colleague Letter, to zero out income earned from work, to reduce or eliminate the amount of unemployment compensation, to adjust the adjusted gross income (AGI), or to adjust any other data element used in the calculation of the EFC or COA because the individual is receiving unemployment income or has suffered a loss or reduction in income. This is true regardless of whether a national emergency is in effect.

In such cases, documentation can include documentation of the loss of employment or receipt of unemployment benefits, including, but not limited to:

• Documentation of loss of employment, such as a signed statement from the student or parent;
• Documentation of loss of employment from the former employer;
• A letter from the state unemployment agency; or
• Other evidence that a student or parent is unemployed or receiving unemployment benefits.

You are not limited to zeroing out income earned from work. If you feel it is warranted, you could also choose to remove the unemployment benefits from AGI, especially if you are using estimated income (or "projected-year income") for a 12-month period that might not include the unemployment benefits. You also could eliminate or reduce the unemployment compensation on the basis that it is likely one-time income. As with any PJ decision, you must document the special circumstances and your reasons for making the adjustment. Also, all PJ decisions must be made on a case-by-case basis. This means, you have to make an individualized determination looking at the entirety of the family's circumstances before you decide to include, adjust, or eliminate any form of income using PJ.

Remember, unemployment income is not income earned from work; it is other income that is included in the calculation of adjusted gross income (AGI). If you are adjusting the amount of unemployment income during PJ, it might be more appropriate to adjust AGI instead of income earned from work.

Also remember the following:

• Any PJ decision must be made on a case-by-case basis and it must be based on adequate documentation. While large numbers of individuals may be experiencing unemployment during a given period of economic hardship, each PJ decision must be made and documented on an individual basis.
• You can choose to use estimated or projected-year income for any 12-month period that you feel appropriately reflects the student’s or parent’s ability to pay educational costs.
• You can make a PJ adjustment late in the current award year (or academic year) if you feel the family’s income will change dramatically enough to impact the EFC and financial aid offers.
• If you make a PJ adjustment in the current award year (no matter how late in the award year), it is retroactive for the entire award year because the EFC applies to the entire award year. For example, someone who has become unemployed and will be receiving unemployment benefits for a month and a half at the end of the current award year might not see a dramatic change to the student’s EFC for this award year; that might not warrant a PJ adjustment. It might be too soon to make that call, but that is your call to make. NASFAA cannot make it for you.
• You can use estimated or projected-year income for both the current and upcoming award years if both award years are impacted.
• The financial aid administrator and school (not ED and not NASFAA) determines what documentation is appropriate for a PJ decision.

Effective with the 2023-24 award year, Section 479A(f) codifies guidance that was previously provided in Dear Colleague Letter GEN-21-02, stating:

"(f) Special rule regarding professional judgment during a disaster, emergency, or economic downturn
(1) In general
For the purposes of making a professional judgment under this section, financial aid administrators may, during a qualifying emergency--

(A) determine that the income earned from work for an applicant is zero, if the applicant can provide paper or electronic documentation of receipt of unemployment benefits or confirmation that an application for unemployment benefits was submitted; and

(B) make additional appropriate adjustments to the income earned from work for a student, parent, or spouse, as applicable, based on the totality of the family's situation, including consideration of unemployment benefits.

(2) Documentation
For the purposes of documenting unemployment under paragraph (1), documentation shall be accepted if such documentation is submitted not more than 90 days from the date on which such documentation was issued, except if a financial aid administrator knows that the student, parent, or spouse, as applicable, has already obtained other employment.

(3) Program reviews
The Secretary shall make adjustments to the model used to select institutions of higher education participating under this subchapter for program reviews in order to account for any rise in the use of professional judgment under this section during the award years applicable to the qualifying emergency, as determined by the Secretary.

(4) Qualifying emergency
In this subsection, the term "qualifying emergency" means--

(A) an event for which the President declared a major disaster or an emergency under section 5170 or 5191, respectively, of title 42;

(B) a national emergency related to the coronavirus declared by the President under section 1621 of title 50; or

(C) a period of recession or economic downturn as determined by the Secretary, in consultation with the Secretary of Labor."

Note: At the time this Q&A was last updated, Dear Colleague Letter GEN-21-02 only applied through the 2022-23 award year, but that does not prevent you from exercising PJ as detailed above. GEN-09-04 and GEN-09-05 have been archived by ED and are no longer applicable.

See the November 4, 2022 Dear Colleague Letter, GEN-22-15 for more information.