Parents transferring guardianship of their children for student aid

Parents transferring guardianship of their children for student aid
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Thought you guys would get a kick out of this… it is very creative and fat wallet like.

CHICAGO—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. “Our financial-aid resources are limited and the practice of wealthy parents transferring the guardianship of their children to qualify for need-based financial aid—or so-called opportunity hoarding—takes away resources from middle- and low-income students,” said Andrew Borst, director of undergraduate enrollment at the University of Illinois. “This is legal, but we question the ethics.”

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.

Transferring her daughter’s guardianship was largely a matter of paperwork, the mother said. Her business partner attended a court hearing with an attorney. She, her husband and her daughter didn’t even need to show up, she said. Once the guardianship was transferred, the teen only had to claim the $4,200 in income she earned through her summer job, the mother said.

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.

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The woman and another Chicago-area parent who spoke to the Journal said they followed the strategy laid out by a college consultant company called Destination College, based in Lincolnshire, Ill. The company says on its website it has saved families as much $40,000 a year per student. The website doesn’t specify how.

The owner of the company, Lora Georgieva, didn’t respond to requests for comment. Other people who said they are clients of the firm and spoke to the Journal said they were asked to sign a confidentiality agreement to not disclose her strategy of transferring guardianship.

The Education Department is looking at such transfers through its investigative arm, its Inspector General Office, said a person familiar with the matter. The office has suggested that the Education Department add clarifying language to the Federal Student Aid handbook. The suggested language, this person said, is: “If a student enters into a legal guardianship, but continues to receive medical and financial support from their parents, they do not meet the definition of a legal guardianship and are still considered a dependent student.”

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.”

Mari Berlin is one of the attorneys at the Chicago firm of Kabbe Law Group who has represented about 25 families who have transferred guardianship for the purposes of securing independent student status, which can generate more financial aid.

“The guardianship law was written very broadly,” Ms. Berlin said. “Judges were given an immense amount of discretion. The standard is, best interest of the child, and I think it’s hard to argue that this is not in the student’s best interest.”

The University of Illinois notified the Education Department last year after a teenager mentioned the strategy to her high-school guidance counselor in suburban Chicago. The counselor notified the University of Illinois, where the student had applied, Mr. Borst said.

On her admissions application, the student indicated she lived with her parents in an affluent Chicago suburb, but on her financial-aid application she said she was independent, a university financial-aid officer discovered. That made the student eligible for thousands of dollars in need-based aid from the federal government, the state of Illinois and the university, Mr. Borst said.

Admissions officers found 15 students whom they had accepted who had recently legally transferred guardianship. The school said it will likely withhold institutionally funded need-based aid “until we are satisfied that students who have transferred guardianship don’t have other financial resources available,” Mr. Borst said.

Apart from the university aid, the students each are receiving up to $11,785 in state and federal aid, he said.

“They are gaming the system, whether it is legal or not doesn’t make it any less unsavory,” said Justin Draeger, CEO and president of the National Association of Student Financial Aid Administrators.

A man who says he is a client of Destination College said his mother became the guardian of two of his daughters, including one who will attend college this fall. His daughter received need-based aid at some schools but not at others, he said.

The issue of gaming college admissions entered the public realm this year when William “Rick” Singer, CEO of an admissions consultancy, was charged for running a scam in which he helped students cheat on their college entrance exams and bribed college athletic coaches to get students into elite universities. Mr. Singer has pleaded guilty to four felonies and is cooperating with the case that includes charges against 51 total, including 34 parents.

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This is an automatically-generated Wiki post for this new topic. Any member can edit this post and use it as a summary of the topic’s highlights.

Wouldn’t it be easier for the students to get married? This qualifies them as “independent” for FAFSA purposes and their family income (theirs and their spouse’s).

Frankly I’m surprised that more universities with robust need-based aid policies don’t have students pairing off and getting married very, very, very young (freshman year or earlier). There are typically better dorms for married students and the savings are potentially hundreds of thousands of dollars.

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We’ve devalued marriage pretty heavily as a society, but not quite that much yet. The opposite is more common. People that love each other and would probably otherwise get married choose not to because the mother would lose benefits.

I didn’t read the whole post because it was long, but based off what I did read, my parents did something fairly similar, yet not quite as shady as the example at the top. My parents were divorced and I lived with my dad in high school. When I graduated, as his dependent, his income was the basis for my FAFSA. After my sophomore year, he and my mom realized I could get some grant money and some subsidized loans if I became her dependent, so they switched.

I ended up paying my student loans myself, so I’m glad they did that. That’s the trouble with the FAFSA rules. Some parents have higher incomes, but don’t pay much toward their kid’s tuition for all sorts of reasons. The FAFSA doesn’t consider how much the parent actually pays, just that they make a certain amount, therefore they should be able to pay. It’s a very imperfect system, so many people feel they have to game it where they can.

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I think its the high divorce rates that have curtailed marriages much more than anything else.

I myself don’t see anyone saying that marriage is of no value. Instead I see many people seeing failed marriages and divorces all around them and being wary of marriage and avoiding it for the fear of ending in such a divorce.
Now you might call the ease and frequency of divorces a devaluation of marriage vows.

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Yes the financial aid system is pretty messed up in general.

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Bingo

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Clever stuff. Students are independent adults in anything else except when it comes to FAFSA. Transferring their guardianship seems like it should be more complicated than that but it might have less consequences than marriage to get kids to be treated as independent for FAFSA.

Easiest would probably to find someone trustworthy to go to university with during senior year an high-school and marry them. Problem is you’d probably have to live with them at least initially so better be more than just a random acquaintance. And for parents, you’d probably want a serious prenup before any of that happens.

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Fine, I’ll say it. Marriage can have zero or negative value. Remember the marriage penalty? The most recent tax reform did a lot to minimize it – the MFJ brackets are now exactly double the single brackets – but the penalty still exists for some people. For example, an individual might be able to get more by itemizing deductions that may not be possible for a couple.

The best things about marriage are employee benefits, healthcare access & decisions, gift tax exclusions, protection against being compelled to testify against a spouse, next-of-kin situations, and whatever you call the opposite of the marriage penalty (less income tax if one spouse has much lower income, for example). Many of these can be had under domestic partnership laws in many states.

Another somewhat positive thing about marriage is that it makes splitting up a little more difficult and expensive. Positive for the modern family values, that is.

Uhm… I don’t know when you went to school, but I’m pretty sure that the income of both parents, even if divorced and remarried, was considered on FAFSA.

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Pretty sure only the custodial parent’s income is considered (plus any alimony or child support from the non-custodial parent).
http://www.finaid.org/questions/divorce.phtml

The Federal government does not consider the income and assets of the non-custodial parent in determining a student’s financial need. However, it does consider child support received by the custodial parent.

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Did these families actually do anything illegal?

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That person wouldn’t have to be of the opposite sex either … If you are going to have a roommate anyhow, might as well marry them, lol.

Doesn’t look like there is anything illegal.

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My understanding is that the transfer of guardianship by itself is not illegal, but doing it in order to collect financial aid that the student wouldn’t have qualified for is probably fraudulent (=illegal). Intent is important. IANAL.

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I’m guessing that if it became a common strategy, FAFSA would scrutinize it more closely. Like only disregard parental assets if guardianship transfer occurred more than 3-5 years before. And request evidence that parents have not provided the child (or the new guardian) with any support since then, if the child has lived with new guardian since the transfer, etc…

Or only validate the transfer for specific reasons stated in the guardianship transfer request (but not the generic ones mentioned in most). So that only transfers granted by a court in view of more obvious needs would be recognized. Basically that’d amount to FAFSA looking at likely intent for the transfer.

Then simply enforcing penalties for the fraud more aggressively when it is discovered to try to deter against it. Universities could void your credit hours earned (and ask for restitution of the money) if you exploited a guardianship transfer to get their finaid too.

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Yes I’d agree that there could be fraud involved which would be a crime.

Some of the people involved may have committed fraud along the way for sure. The article mentions one girl who listed her parents address on her college application and then claimed independence on finaid. THat seems probable fraud.
But it seems dozens of people total did this and I think they might have been able to have perpetrated this scheme without committing actual fraud. Seems theres 2 potential points for fraud mainly. First the guardianship transfer in court and second the finaid application. Seems the guardian transfer process is pretty lax and if someone was vague enough there they could have done that fine without any fraud. Then in the finaid application it doesn’t seem FAFSA asked about this, so if careful they could have done that without fraud too.

So I think there isn’t necessarily fraud involved there. Just my guess/opinion though, and IANAL too

Probably not. Ethical? Not in my book.

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I have absolutely no idea if this is actually criminal or not, but I do think (generally) there are actions that seem like they should be criminal but aren’t, just as there are actions that seem like they shouldn’t be criminal but are.

Legality looks fine if done correctly, ie not lying on applications and such.

Several universities in Illinois say they are looking into the practice, which is legal. “Our financial-aid resources are limited…” said Andrew Borst, director of undergraduate enrollment at the University of Illinois. “This is legal, but we question the ethics.”

“The guardianship law was written very broadly,” Ms. Berlin said. “Judges were given an immense amount of discretion. The standard is, best interest of the child, and I think it’s hard to argue that this is not in the student’s best interest.”

But like anything that gets publicity, there may be consequences if you get noticed.

Admissions officers found 15 students whom they had accepted who had recently legally transferred guardianship. The school said it will likely withhold institutionally funded need-based aid “until we are satisfied that students who have transferred guardianship don’t have other financial resources available,” Mr. Borst said

I’m not buying it. If the transfer was done to game the financial aid system, then it was done with the intent to defraud state and federal government and the university. No lying on the college or finaid applications required.

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