Personal finance

Parents are exploiting this legal loophole to get their kids more need-based college financial aid

Illini Union building on the University of Illinois at Urbana-Champaign campus

Source: UI Public Affairs

First there was the college admissions scandal earlier this year, which revealed the elaborate lengths wealthy parents will go to get their children into elite schools, including faking a learning disability and forking over $1.2 million.

Now another trend shows what some parents will do to fatten the financial aid their children receive, even if they may not need it.

Dozens of parents in Chicago have transferred legal guardianship of their high school-aged children to someone else — often, a friend or relative— so that their children can declare themselves as financially independent from them, likely enhancing their eligibility for federal, state and university aid. ProPublica Illinois first reported the news.

“At best, this is unethical,” said Mark Kantrowitz, the publisher of “At worst, these cases may involve fraud and perjury.”

Independent students must report any money they receive from their parents on the Free Application for Federal Student Aid, or FAFSA, Kantrowitz said. “Failing to report this cash support is fraud, subject to fines up to $20,000 and/or up to five years in prison,” he wrote in an email.

ProPublica Illinois identified at least 40 cases where families from affluent areas had obtained a legal guardian for their child between January 2018 and January 2019 in the Chicago suburbs of Lake County alone. The parents include “lawyers, a doctor and an assistant schools superintendent, as well as insurance and real estate agents,” according to ProPublica.

The aid these students received could have taken money away from families in need. In Illinois in 2018, about 82,000 students who were eligible for a grant of up to about $5,000 were denied it because there wasn’t enough money, according to ProPublica.

These practices underscore how difficult it can be for middle- and low-income students to get their foot in the door at certain colleges, Kantrowitz said. “It is not a level playing field, even without cheating,” he said.

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Less than 5% of students at Ivy League and other elite colleges come from families in the bottom 20% of the income distribution, according to one study. More than 14% of their students hail from the top 1% of earners.

Costs are up at almost all colleges. One year at a nonprofit, four-year private college, including tuition, room and board, currently costs $48,510, compared with $22,240 in the 2000-2001 academic year.

Meanwhile, the median family income, after accounting for inflation, was $59,039 in 2016, little different from what it was in 2000 ($58,544).

“Government support has failed to keep up with increases in college costs on a per-student basis,” Kantrowitz said.

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