professional	judgment	by	schools	during	the	award	years	applicable	to	the	qualifying	emergency.
The	Foreign	Earned	Income	Exclusion,	Maximum	Pell	Grant,	and	PJ
The	amount	a	taxpayer	claims	as	the	foreign	earned	income	exclusion	counts	as	untaxed	income	on	the	FAFSA	form.
Because	this	appears	in	untaxed	income	rather	than	the	AGI,	it	will	not	be	counted	when	determining	students9	eligibility
for	a	maximum	Pell	Grant.	As	we	noted	in	Dear	Colleague	Letter	GEN-23-11,	there	will	be	a	C	flag	on	the	ISIR	that
indicates	to	schools	to	review	how	the	amount	impacts	a	student9s	eligibility	for	the	maximum	Pell	Grant	prior	to	awarding
aid.	As	we	instructed	in	our	online	Q	&	As	(SAI-Q5	and	SAI-Q6)	FAAs	must	review	eligibility	for	applicants	(and	their	spouse
or	parent)	who	reported	receiving	a	foreign	earned	income	exclusion	and	are	eligible	for	the	maximum	Pell	Grant	award.	If
an	ISIR	contains	both	a	Maximum	Pell	indicator	flag	and	a	valid	value	in	the	<Foreign	Earned	Income	Exclusion=	data	field,
we	will	flag	the	ISIR	for	the	FAA	to	review.
The	FAA	will	determine4via	manual	or	estimated	SAI	calculation4if	adding	the	exempted	foreign	income	to	the	adjusted
gross	income	(AGI)	would	make	the	student	ineligible	to	receive	the	maximum	Pell	Grant	award.	If	that	would	occur,	the
FAA	must	determine	whether	it	is	appropriate	to	use	PJ	to	account	for	the	foreign	income	in	determining	the	student9s
eligibility	for	the	maximum	Pell	Grant.	If	the	FAA	decides	that	it	is	appropriate,	the	FAA	may	move	the	foreign	earned
income	amount	from	untaxed	income	to	AGI	or	request	additional	documentation	of	the	foreign	income	prior	to
performing	the	adjustment.	If	the	FAA	decides	to	add	the	untaxed	foreign	earned	income	to	the	AGI,	the	FAA	must	check
the	PJ	flag	on	the	ISIR	before	submitting	the	correction.
Refusing	or	Reducing	a	Loan
FAAs	may	also	use	their	discretion	to	refuse	or	reduce	Direct	Loan	funds	if	they	document	the	reason,	make	the
determination	on	a	case-by-case	basis,	notify	the	student	in	writing,	and	ensure	the	decision	is	not	due	to	discrimination
based	on	race,	national	origin,	religion,	sex,	income,	age,	or	disability.
Unusual	Circumstances
The	FAFSA	Simplification	Act	provides	a	clearer	directive	for	FAAs	to	assist	applicants	with	unusual	circumstances	to
adjust	dependency	status	on	the	FAFSA	form	to	reflect	students9	situations	more	accurately	(dependency	overrides).	Like
other	types	of	professional	judgments,	institutions	must	make	students	aware	of	their	ability	to	request	an	adjustment	for
Foreign	Earned	Income	Exclusion	PJ	Example
AVG,	Chapter	5,	Example	4:	A	dependent	student9s	parent	has	an	overseas	business	that	earns	income	for
which	the	parent	claims	the	foreign	earned	income	exclusion	on	Schedule	1	of	their	IRS	Form	1040.	The	FAA
notices	this	amount	on	the	ISIR	and	that	the	Maximum	Pell	indicator	flag	has	been	set,	which	means	that	the	FAA
is	required	to	review	the	case.	The	FAA	does	a	manual	calculation	of	the	student9s	SAI	with	the	amount	of	the
exclusion	included	as	AGI	rather	than	as	untaxed	income.	Because	the	amount	is	the	maximum	that	could	be
claimed	($120,000	for	tax	year	2023,	transferring	the	amount	from	untaxed	income	to	AGI	makes	the	student
ineligible	for	an	automatic	maximum	Pell	Grant.	The	FAA	decides	to	use	PJ	to	move	the	amount	of	the	foreign
earned	income	exclusion	to	the	parent9s	AGI.
Refusing	or	Reducing	a	Loan
34	CFR	685.301(a)(8)