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NEW YORK (MainStreet) — When it comes to student loans, knowing how much to apply for and where to get the best deal is all-important. But knowing when to apply in time to meet application deadlines can spell the difference between whether or not aid is available at the start of a semester.

A report on the matter, "A Tale of Two Income Years," was released last week by Washington, D.C.-based NASFAA--the National Association of Student Financial Aid Administrators. It recommends a change in the way tax returns are used to support student aid applications that would give borrowers a leg up on beating these deadlines. The report was written by Gigi Jones, NASFAA's research director, and Robert Kelchen, assistant professor of higher education at Seton Hall University, with the support of a grant from the Bill and Melinda Gates Foundation. The report was based on an analysis of 70,000 student records over the last five years.

Every year, students have to file a Free Application for Federal Student Aid (FAFSA) to be considered for federal grants, loans and work-study. Timing is critical when submitting the form--the FAFSA depends heavily on the latest income information submitted through tax returns. A delay in applying can cause the student loan supply chain to bog down—pushing back notification and reducing the amount of an award.

The hang-up for prospective borrowers is the paper chase that comes assembling the tax documents needed to apply. NASFAA recommends that borrowers be allowed what are called "prior prior year documents," also dubbed PPY.

Instead of using last year's returns, they could use the year before last—the prior prior year, which are more likely to be available when the application is being filled out. So if you're applying in 2014 for loans, grants or any kind of aid, you could use 2012 tax documents, which, NASFAA says, you'd be more likely to have than 2013 documents. What's more, you could apply a year earlier—and get an earlier decision.

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Students from low income families and independent students with dependents of their own--the two least affuent cohorts--would benefit the most according to the report, because their expected family contribution varies the least from year to year. Income on a return from a prior prior year would differ little from the prior year.

Kelchen, writing in his October 23 education blog, had some morning-after reservations about using prior-prior year tax documents, albeit mild ones, including concerns that newly available grounds for appeals could put an added burden on financial aid offices. He also suggested that the use of prior prior year tax returns didn't go far enough.

"A perfectly implemented PPY program would let students know their eligibility for certain types of financial aid a year earlier than current rules--as early as the spring of a traditional-age student's junior year of high school," Kelchen wrote. "While that is an improvement, it may still not be early enough to sufficiently influence students' academic and financial preparation for college. Early commitment and college promise programs reach students at earlier ages, and thus have more potential to be successful."

Even with these caveats, Kelchen said, "I would like to see PPY get a shot at a demonstration program in the next few years. If it can help at least some students at a reasonable cost, let's give it a try and see if it does induce students to enroll and persist in college.

--Written by John Sandman for MainStreet