The latest college admissions scam works something like this: “Dear child, for your senior year of high school, I’m turning you over to Uncle Louie as your guardian so you can get more financial aid for college. It’s just for a few months and you may not even have to live in his home.”
You’ve just put a price tag on your teenager, who also may now be an accessory to fraud.
Just months after Operation Varsity Blues, where Hollywood stars and other rich families allegedly paid bribes for falsified admissions tests and fake athletic resumes to get their kids into elite colleges, the new fraud is slightly more complex but just as enraging.
Sadly, the parents caught in this latest case could have resorted to common and perfectly legal strategies for more financial aid.
As initially reported by the nonprofit ProPublica Illinois, parents are suspected of giving up custody of their child to a relative or family friend so the student could qualify for college financial aid as an independent student rather than as a dependent.
Put another way, with the parents’ finances out of the picture on financial aid forms, the student could claim financial hardship based on their own resources and assets and qualify for scholarships they otherwise might not be entitled to.
Dozens of Chicago-area parents, including doctors and lawyers from affluent suburbs, allegedly tried to game the financial aid system using a loophole in guardianship status, allegedly with the help of several law firms and a college counselor, according to ProPublica.
About 1% of the 17 million or so college students go through court-approved guardianship changes where there are legitimate reasons for another adult to step in to care for the child. For example, a single mother who cannot care for her child, or situations involving physical or emotional abuse of the child.
Many student loan frauds typically involve parents lying about income and assets and students falsely claiming to live in a state to get in-state tuition.
Kalman Chany, a college counselor and author of the Princeton Review’s “Paying for College” manual, said this is the first time he’s heard of this particular abuse of the law.
This alleged scam takes money away from needy students, added Mark Kantrowitz, publisher and vice president of research at SavingforCollege.com.
“These parents have crossed a moral line by pursuing a sham legal guardianship,” Kantrowitz said.
The U.S. Department of Education said it plans to take measures to close loopholes that have allowed parents to turn over guardianship of their children in hopes of obtaining more financial aid.
Of course, financial aid experts said there are perfectly legal strategies parents can follow for increasing eligibility for need-based financial aid.
Parents can reduce income during the base year for submitting financial data for the FAFSA, and subsequent years.
If parents are divorced, Kantrowitz said it is generally better for the child to live with the parent with the lowest income, because the custodial parent is responsible for completing the FAFSA. But, he cautioned, the situation gets complicated if the custodial parent remarries. Then, the step-parent’s income and assets must be reported on the financial aid forms.
Parents can reduce reportable assets on financial aid documents by paying cash to handle mortgage, auto loans and credit card debt, Kantrowitz said.
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