clock menu more-arrow no yes

Filed under:

The latest college financial aid scam: Parents giving up custody of their children

There's a new attempt to obtain financial aid that's raising eyebrows in Illinois. Find out about the lengths some higher-income parents are going to for free college financial aid for their kids.

A photo of the University of Illinois. There's a new financial aid practice raising eyebrows in Illinois.
A photo of the University of Illinois. There's a new financial aid practice raising eyebrows in Illinois.
Adobe Stock

SALT LAKE CITY — Experts are questioning the ethics of yet another practice parents are using to advantage their children when it comes to attaining a college degree.

This one focuses on obtaining free financial aid and scholarships for students who would not otherwise qualify based on their family's income.

Illinois' ProPublica and The Wall Street Journal both found cases in Illinois where parents relinquished custody of their kids, exploiting a loophole so that parental income would not be used in financial aid calculations. They suggest the practice may also occur elsewhere, though no one's sure how widespread it is.

"Parents are giving up legal custody of their children during their junior or senior year in high school to someone else — a friend, aunt, cousin or grandparent," the Chicago Sun-Times reported. "The guardianship status then allows the students to declare themselves financially independent of their families so they can qualify for federal, state and university aid, a ProPublica Illinois investigation found." Although guardianship is technically given up, it doesn't bar the child from continuing to live at home.

“It’s a scam,” Andy Borst, director of undergraduate admissions at the University of Illinois at Urbana-Champaign, said in the article. “Wealthy families are manipulating the financial aid process to be eligible for financial aid they would not be otherwise eligible for. They are taking away opportunities from families that really need it.”

As Quartz reported, "It’s the latest in a wave of scandals that have engulfed the U.S. college admission process. In March, a Justice Department investigation revealed an elaborate scheme, nicknamed 'Varsity Blues,' in which rich parents cheated and bribed their kids’ way into elite universities using outlandish and sometimes illegal tricks."

ProPublica Illinois identified dozens of cases where parents went to the courthouse to have a judge sign off as they voluntarily gave up guardianship to someone else. It cites the U.S. Department of Education website to explain why it's happening: “A student in legal guardianship does not need to report parent information on the FAFSA form because he or she is considered an independent student.” FAFSA stands for Free Application for Federal Student Aid. And with the transfer of guardianship, financial aid awards are calculated using only the student's income and assets.

Experts say it's probably not illegal for parents to legally separate from their children to gain financial assistance, but they note it takes away money intended for low-income students who might not be able to afford college without help, calling it an "unsavory" action.

Other people pay

Borst told the Sun-Times that his institution distributes grants for needy students, including the federal Pell Grant and the Illinois state Monetary Award Program, or MAP grant. Combining them can provide as much as $11,000 a year to needy students.

The Sun-Times reported that "in Illinois last year, about 82,000 students who were eligible for the MAP grant, up to about $5,000, did not receive it because there wasn’t enough money. The grant is awarded on a first-come, first-served basis."

There's no question college costs have been rising. One decade ago, the combined expense of tuition, fees and housing for students at a private four-year college averaged $38,720, compared to the $48,510 average cost of the just-completed school year, according to the College Board. Both figures are presented in 2018 dollars. The price tag on an average four-year public-college education rose from $16,460 to $21,370 during that time.

NBC News reported that "as many as 44.7 million Americans have student loan debt, according to a 2018 report by the Federal Reserve Bank of New York. The total amount of student loan debt is $1.47 trillion as of the end of 2018 — more than credit cards or auto loans."

"Research from Citizens Financial Group suggests that 60 percent of student debt borrowers expect to pay off their loans in their 40s. Data collected at the state level supports these findings. A study from the OneWisconsin Institute finds that it takes graduates of Wisconsin universities 19.7 years to pay off a bachelor’s degree and 23 years to pay off a graduate degree," CNBC reported.

The NBC News report said adults 60 and older are the fastest-growing group of borrowers as older Americans take out loans to help their children and grandchildren pay for college. An estimated 20 million seniors have borrowed on behalf of college students.

Universities told ProPublica Illinois they could adjust financial aid awards if they learned students were receiving financial support from parents who had given up guardianship, hinting they will be more wary and attentive to such cases.

One real example

The Wall Street Journal interviewed a mom from the Chicago area who turned over guardianship of her daughter, then 17, to a business partner.

Wrote Douglas Belkin, "While her household income is greater than $250,000 a year, she said, she and her husband have spent about $600,000 putting several older children through college and have no equity in their home, which is valued at about $1.2 million, according to the property website Zillow. She said she has little cash on hand and little saved for her daughter’s education."

The woman described the transfer of guardianship as paperwork and a court hearing her business partner, the new guardian, went to with an attorney. None of the woman's family — not even the daughter — had to be there. When it was done, the teen just had to claim the $4,200 income she earned over the summer.

"Today, her daughter attends a private college on the West Coast which costs $65,000 in annual tuition, she said. The daughter received a $27,000 merit scholarship and an additional $20,000 in need-based aid, including a federal Pell grant, which she won’t have to pay back. The daughter is responsible for $18,000 a year, which her grandparents pay, the woman said," according to The Wall Street Journal.