Paul L. Caron
Dean


Saturday, August 3, 2019

College Financial-Aid Loophole: Wealthy Parents Transfer Guardianship Of Their Teens To Get Aid

Wall Street Journal, College Financial-Aid Loophole: Wealthy Parents Transfer Guardianship of Their Teens to Get Aid:

Amid an intense national furor over the fairness of college admissions, the Education Department is looking into a tactic that has been used in some suburbs here, in which wealthy parents transfer legal guardianship of their college-bound children to relatives or friends so the teens can claim financial aid, say people familiar with the matter.

The strategy caught the department’s attention amid a spate of guardianship transfers here. It means that only the children’s earnings were considered in their financial-aid applications, not the family income or savings. That has led to awards of scholarships and access to federal financial aid designed for the poor, these people said.

Several universities in Illinois say they are looking into the practice, which is legal. ...

The Journal’s review of more than 1,000 probate court cases filed in 2018 in Lake County, Ill., turned up 38 cases in which a judge granted the transfer of guardianship to a teenager in his or her junior or senior year of high school. Most of the families live in homes valued around $500,000. Several of those homes were valued at more than $1 million, according to property sites including Zillow.

In court documents, a petitioner is asked why he or she should become a guardian. Nearly all of the 38 cases use some version of this language: “The guardian can provide educational and financial support and opportunities to the minor that her parents could not otherwise provide.”

ProPublica, Parents Are Giving Up Custody of Their Kids to Get Need-Based College Financial Aid:

First, parents turn over guardianship of their teenagers to a friend or relative. Then the student declares financial independence to qualify for tuition aid and scholarships.

https://taxprof.typepad.com/taxprof_blog/2019/08/college-financial-aid-loophole-wealthy-parents-transfer-guardianship-of-their-teens-to-get-aid.html

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Comments

I've always believed that "need-based" financial aid is unfair to students whose parents do not believe in paying anything for their children beyond age 18, let alone budget-busting college costs.

If the parents who give up guardianship would not otherwise have paid for college, they are helping their offspring avoid being denied the opportunity to attend college immediately after high school. This dodge might improve fairness in some cases.

Posted by: AMTbuff | Aug 3, 2019 10:36:50 AM

Lol, Chicago. Surprise, surprise.

Reminds me of the sweetheart real estate deal a former president got back a while back in Chicago.

Posted by: Anon | Aug 3, 2019 9:46:06 PM

That should be fairly transparent shouldn't it?

Posted by: Mike Livingston | Aug 4, 2019 3:11:21 AM

LOL @ Anon clutching pearls about the purported sweetheart real estate deal (singular) of ANY president other than the current occupant.

Posted by: Unemployed Northeastern | Aug 4, 2019 8:29:51 PM

If colleges would focus on educating as many people as could handle the material, rather than exclusivity-but-pet-exceptions (with "aid" that isn't except compared to thus outrageously inflated sticker prices) affordability wouldn't be nearly such an issue.

Posted by: Anand Desai | Aug 5, 2019 5:59:54 AM

@AMTbuff -- No program is fair in the absolute sense. At the very least lawyers should understand the virtual impossibility of creating rules that are not somewhat both over- and under-inclusive. In addition to the example you provide, need-based assistance rewards families who drive newer cars and take nice vacations at the expense of families who exercise prudent self-denial. The chief irony of our current student loan crisis is that college was actually far more affordable for working class students before the advent of easy access to loans and grants. One would think that this fact alone would be fodder for just a bit of honest reflection by our policy-makers.

Posted by: Mike Petrik | Aug 6, 2019 5:02:31 AM