New, perfectly legal college scam: Rich parents giving up guardianship of their children to qualify them for financial aid

For some reason it’s the petty corruption of stories like this and the Lori Loughlin one, involving fatcats rigging the college process for their kids, that brings out my inner populist more so than the grand-scale corruption that the rich routinely engage in. You want to buy off federal regulators to protect your business’s bottom line? Eh, whatever. That’s something elite cretins in every society do.

You want to run a scam to get your kid a discount admission to university when poorer families are desperate for aid? Then we should turn you and your spawn into hot dogs.

Partly that’s me being parochial. Many of us know firsthand the financial burden of paying for school whereas influence peddling on Capitol Hill doesn’t reach us as directly. But it’s also partly the sense that the playing field should be a bit more equal for kids, at least. There’s so much time for the rich to game various systems to their advantage once they’re adults! At least give the teens from schlubby middle-class families a fighting chance.

Anyway, fire up the grill. It’s hot-dog time.

Parents are giving up legal guardianship of their children during their junior or senior year in high school to someone else — a friend, aunt, cousin or grandparent. 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…

ProPublica Illinois found more than 40 guardianship cases fitting this profile filed between January 2018 and June 2019 in the Chicago suburbs of Lake County alone. The parents involved in these cases include lawyers, a doctor and an assistant schools superintendent, as well as insurance and real estate agents. A number of the children are high-achieving scholars, athletes and musicians who attend or have been accepted to a range of universities…

In Illinois last year, about 82,000 students who were eligible for the [Monetary Award Program] 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.

In other words, if you’re in the not-so-sweet spot between middle class, where your kid qualifies for aid, and quite rich, where the cost of education is of no consequence, you’re better off effectively emancipating them so that they can feed from the same trough of grant money as students in more dire need of financial help. The Journal looked at one case:

One Chicago-area woman told The Wall Street Journal that she transferred guardianship of her then 17-year-old daughter to her business partner last year. 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…

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.

Once the guardianship was established, the daughter’s household income for federal financial aid purposes was a scant $4,200. And really, what else could the family in this case do?

What’s that, you say? They could have sent their daughter to a state school instead? Well … yeah, I suppose they could have.

Or they could have asked each of their children to attend state schools so that there’d be money left over to pay the youngest’s tuition? I guess they could have done that too.

Or they could have sold their million-dollar home years ago in anticipation of another round of tuition, downsized to a smaller place, and applied the monthly savings in housing costs to a 529 account?

Also an option, I reckon.

The Department of Ed is reportedly looking at tightening the rule for guardianships so that students who continue to receive financial support from their parents after a guardianship has been granted would be treated as still belonging to their parents’ household for financial aid purposes. That’s good, but I wonder how easy it would be to skirt it. In one case described by Pro Publica, the guardianship lasted for just a month; presumably it’d be easy for some of these families to gift their kid with, say, six months’ of living expenses before a short-term guardianship so that no support needs to be provided afterwards.

Unanswered exit questions: Are these cases only happening in and around Chicago, which is the focus of the two pieces quoted above, or is it a national phenomenon? Should the feds be able to recover grant money awarded pursuant to a fraudulent guardianship?