The process of applying to college and figuring out how to pay for it is stressful enough for students and families, but a recent data breach just made things even harder. It’s been revealed that up to 100,000 taxpayers may have had their personal information compromised in an identity theft scheme involving the IRS Data Retrieval Tool, which is used to complete the Free Application for Federal Student Aid (FAFSA).
When families are filling out the FAFSA, providing tax information is part of the process. To make this easier, the Data Retrieval Tool is able to easily retrieve tax information from the IRS and automatically populate the applications with those details. In the fall of 2016, however, the IRS realized it could be possible for cyber criminals to use the financial aid tool to steal tax data.
“I told (the Education Department) as soon as there was any indication of criminal activity, we would have to shut that system down,” said Internal Revenue Service Commissioner John Koskinen, speaking with Fox Business. “To shut it down without a clear indication of criminals actually using it seemed to us it was going to unnecessarily disadvantage millions of people who used it.”
In March 2017, federal officials observed a potential data breach and made the call to take the tool down for the time being. The IRS said it shut down the Data Retrieval Tool because identity thieves that had obtained some personal information outside of the tax system were possibly using the tool to steal additional data. Some questionable tax returns were filed by people who had used the tool, but those returns have already been stopped.
The New York Times reported that the IRS has already sent out 35,000 letters to taxpayers who may have been impacted and it’s planning to contact 100,000 people to let them know they may be at risk. Currently, the agency suspects that less than 8,000 fraudulent returns were filed, processed, and returns issued, costing $30 million. 52,000 returns were stopped by IRS filters and 14,000 illegal refund claims were halted as well.
While the tool has been taken down, it’s a big blow to students and parents applying for federal financial aid. Some lawmakers are concerned that without the tool, some lower-income applicants may be discouraged from applying for financial aid or continuing with college applications. The IRS is planning to launch a more secure version of the tool in October for the beginning of the next application cycle.