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SMART MONEY TEACHES WELL-TO-DO HOW TO CHEAT AT SCHOLARSHIP GAME

In its April 15 issue, Smart Money, a Wall Street Journal magazine, passed along some devious advice.

It was from Doug Mollin, a financial planner, on how well-to-do parents can qualify for college scholarships based on financial need.One way to create a pauper's profile, Mollin said, is to move trust funds and other assets to grandparents, who can transfer them back "once college is out of the picture."

Smart Money also encouraged laziness. It quoted Ray Rusolillo, a senior tax manager at Coopers & Lybrand, as saying: "Strange as it may sound, it is almost better to tell your child, don't work."

Employment, the magazine explains, is financially futile because students receiveing federal aid must use 70 percent of their income on college costs, meaning that colleges "bleed your children dry."

Bleed? Whatever happened to sacrificing, saving for college and working your way through?

Similarly, Money magazine's 1992 College Guide suggests that shifting debts from credit cards to home-equity loans "will actually increase your eligibility for aid." The reason is that federal formulas for financial-aid eligibility subtract mortgage debt from net worth.

Suggestions like this typify a spreading corrosion in college finance and personal ethics. Each year at Connecticut College, among our 1,650 students we see about 25 scholarship applicants whose families show high incomes, significant future earning power and few younger children to support.

Somehow they craft financial-aid forms showing minimal assets and enormous debts. Other colleges report similar findings.

When we request further documentation it often turns out that these families can afford to put nearly half their incomes into pension plans.

Others reduce family assets on paper by investing heavily in life insurance or by making "loans" from personal savings to family corporations.

To be sure, families should be allowed to present a full picture of their financial pressures. But this type of duplicity teaches their children to cheat the system. It diverts money from the truly needy.

It forces colleges to spend money on detective work. It is a slap in the face to scholarship donors, who expect their gifts to meet real needs. And it defrauds taxpayers, who foot the bill for government aid.

Paradoxically, colleges that insist on equal opportunity suffer the most. Cheating is one reason many institutions have had to abandon "need-blind" admissions, the policy of accepting students regardless of their financial resources.

This summer, congress actually widened one loophole in the federal formula. To help middle-class parents, amendments to the Higher Education Act of 1965 removed home equity from the list of assets that the government assumes are available for education.

A more judicious solution would be to place a cap on the exemption; home equity amounting to more than three times a family's yearly income should be deemed available.

Such reforms would move the country toward fairer judgments of a family's capacity to pay.

But laws are never enough. We need to raise the expectation that parents, financial planners and even influential publications will act ethically.