Loophole—or Fraud? How Far Parents Go to Save on College
“Parents Are Giving Up Custody of Their Kids to Get Need-Based College Financial Aid.” That was a headline last week in ProPublica Illinois, and it got people talking once again about the madness around college admissions.
Here’s the gist: Some pretty well-off parents in the Chicago suburbs, in some cases making six-figure incomes, had figured out a loophole in the financial aid system. Just before their child turns 18, the parents legally turn over guardianship to a family friend or relative. That way, in the eyes of colleges, the student is considered financially independent when they apply for admission and financial aid. In other words, in one bang of a judge’s gavel, a student goes from privileged to needy.
That change in status can make a big difference in how much college costs. The student can now qualify for state and federal aid programs that can total more than $11,000 a year. And the ProPublica investigation found that dozens of families were using this approach—handing over custody of their kids just to save on college.
Even longtime watchers of college admission said this was a new one to them.
The Varsity Blues scandal unveiled earlier this year showed that some people were willing to resort to bribery and fraud to help their kids gain admission to elite schools. Now it seems that parents are even willing to give up custody of their children just to save on tuition.
In comments on the ProPublica article and in other online forums, though, plenty of people chimed in expressing sympathy for these Chicago-area parents, calling their move a clever solution to this challenge facing their kids that seemed overwhelming. To these commenters, the real problem is the high cost of college and what they see as unfair rules around how much parents are expected to contribute.
For this week’s podcast, we talked at length with one of those commenters to get a better sense of why they related to these parents. And we talked with an expert on college financial aid, Mark Kantrowitz, who runs a popular site called SavingForCollege.com—who sees the situation very differently.
We’ve provided the transcript below for accessibility, though it’s a better experience in audio.
Mark Kantrowitz: I never thought that parents would stoop that low in order to get more financial aid for their kids.
EdSurge: That’s Mark Kantrowitz, an expert on financial aid who runs a popular site called SavingForCollege.com. To him, these families are committing fraud by trying to fool the system, and as a result they’re taking away aid that would have gone to much needier families.
Kantrowitz: There’s a moral line in the sand that these families cross. I would love to have a Lexus but all I can afford to drive is a Yaris. Does that entitle me to go into the car dealership and steal a Lexus? No. Of course not.
The system assumes that parents have primary responsibility for paying for their children’s college education until the child reaches age 24, and the federal and state governments and the colleges step in when the family is unable to pay for college, not when the family is unwilling to pay for college.
Now what we commonly hear are “grass is always greener” type of argument that the family is too wealthy to qualify for financial aid but too poor to afford college. Well, the question is which college? Are they talking about an in-state public college that has lower costs, or are they talking about one of the most selective colleges which tend to be much more expensive? Oftentimes they feel an entitlement to that most expensive college even though they don’t have the financial means to afford it.
EdSurge: In comments on that ProPublica article, and in some other online forums we saw, plenty of people chimed in expressing sympathy for these Chicago area parents, calling their move a clever solution to the challenge facing their kids. To these commenters, the real problem is the high cost of college and what they see as unfair rules around how much parents are expected to contribute.
Ehren Schwiebert: I live in Portland, Oregon. I am a parent of two college-aged children and one child who is eight and already starting to figure out planning for college.
EdSurge: That’s one of the commenters from the article and I think he represented this reaction that lots of parents out there had. I asked him if he’d read what he posted.
Schwiebert: I feel a bit conflicted here. I’m 46 now, and in my late teens and early twenties, I struggled to get financial aid—because my middle-class family made too much money for the federal government to consider me worthy of grants or loans despite their mortgages, car loan payments and general high costs of eking out a living. My parents were expected to cover the cost of my college tuition. Then when I was 22 I found myself the father of a newborn son and my status changed overnight from dependent to independent student in the eyes of the federal department of education. The floodgates of federally subsidized student loans and grants opened up to me and I was able to get my degree. Well, now I have two college-aged kids and the federal government still uses my income to calculate their need even though we absolutely cannot afford to send them to college.
In reading this ProPublica article, I kind of wish I’d known about the guardianship loophole. It might’ve made college actually affordable for my children.
As it is, my 23 year old son has been living on his own without any significant help from my wife and me for over three years now. The Department of Education still considered him a dependent student, demanding my tax returns on his FAFSA for any kind of aid, which is kind of ludicrous.
This ProPublica article is trying to position this as some kind of “gotcha” journalism piece. “Clutch the pearls, people taking advantage of loopholes to make college more affordable.” But here are the real scandals as I see it:
1. Young adults who are completely financially independent from their parents must delay college until they turn 24 to qualify for the financial aid that they need to actually pursue it, and;
2. The parents of adult citizens must have their own income factored into financial aid calculations for children they no longer have any financial stake in supporting.
EdSurge: I told him what Mark Kantrowitz had said—that this would essentially amount to stealing a Lexus.
Schwiebert: I don’t like cheats. I think people should play by the rules but I’m not going to lie. When my kids were approaching college age, I was telling them, ‘I’m not sure I can afford to give you much support in getting through school, but if you become an independent student, [you can get more aid]. And here are the different avenues you can do that: You can join the military. You can get married—I’m not rushing you into marriage but that is one way to do it.
Or you can have kids—which is ironic because kids can be very expensive, but suddenly you have a lot more avenues of support and aid if you are an independent student was the gist of it.
I said, “Otherwise you guys are going to have to work really, really hard and get the best grades you can.” The ironic thing is that need-based aid is always based on the income of the parents and if you’re a middle-income person, you are just basically getting your bills paid and your mortgage paid and your car payment and there’s not much left over.
Our other choice is to sell our house and move to a bad part of town and maybe not own a second car. I found myself sympathizing with the parents who are kind of looking for answers on how to get their kids that kind of aid. It seemed a bit drastic to be emancipating your 17 year old two weeks before their birthday but if it’s not illegal, even if it violates the spirit of the law, I was like, “Hmm, I would give that a serious think.”
EdSurge: I read that parent’s comment to Kantrowitz and his reaction was essentially, “Can this parent and others like him really not afford college?”
Kantrowitz: The reality is everybody struggles to pay for college and college is incredibly expensive. But the low-income students, even with the financial aid, struggle more than the middle-income students, who struggle more than wealthy students to pay for college.
The reality is that even with this financial aid we are, as a nation, not doing enough to enable low-income, college-capable students to pursue a college education. The baseline that middle-income families often measure themselves against isn’t any college, it’s particularly expensive colleges. Just because it’s much more difficult to afford those colleges doesn’t give anybody a right to cheat and steal from the federal state government and from the colleges themselves so that their child can go to college and not have to borrow or not have to pay as much.
Schwiebert: Yeah. Well, the problem with the system is it assumes that the parents are all equipped to put their adult children through a four, six or eight-year degree program, which frankly we just aren’t. I mean, I feel like I make a decent living. I put food on the table. We can take a nice vacation from time to time or get nice presents at Christmas time and birthdays, but I am not driving a Lexus.
You know, I’m not driving a Yaris but I need to be able to afford ... If I’m expected to help my kids through school I don’t know how I’m supposed to do that on the income that I have. That’s what it boils down to.
EdSurge: But you’re not somebody who’s like, “It’s got to be the most exclusive bragging night school or nothing.”
Schwiebert: No, because honestly, I look around my workplace and I look around the people who I interact with and who I respect and I have no idea where they went to school. It doesn’t impact my impression of them. I may be alone in that or I may be in the minority. Other people might be like, “Oh my gosh. That dude went to Stanford and he is so amazing because he went to Stanford and now look at him.”
I’m more in awe of people who I work with on a daily basis who never went to college at all and have achieved some really incredible successes in their career. We’ve also kind of backed down on the “You’ve got to go to college” talk.
We encouraged our oldest who is kind of on a break from college as he just moved, and so he’s kind of getting settled. But we’re like, “You’ll be 24 soon and you’ll be an independent student. This problem about funding kind of goes away in a sense that you’ll be able to sort of get the aid that you need without requiring mom and dad’s tax returns to determine your need. Your need is going to be very high because you’re flipping burgers right now as opposed to going to school. You’re working retail and fast food, as opposed to a higher income job that would make you less eligible for the need-based aid.”
EdSurge: Since so many people in the comments seemed to express views like this, I was curious to hear what the reporters who did this investigation for ProPublica thought. So I reached out to one of the authors of the article, Jodi Cohen. She was on her way to report another story and she could only talk by cell phone. This recording of our call was pretty garbled but I asked her: Was she surprised by the reaction?
Jodi Cohen: No. I’m not surprised by it. One subtext of this story is that college is so expensive, and so I think that’s why a lot of people are focusing on that and saying like this is a symptom of college being too expensive and families feeling really squeezed.
EdSurge: She did say that in response to the article lawmakers in Illinois are looking to try to close this loophole.
We also put out a call in Next, our weekly higher ed newsletter, asking readers to share their thoughts on the issue. One person we heard from was Samantha Stuber, who until recently was a college and career counselor at a public high school.
I asked her whether she’d ever heard of a family giving up custody of their kid just to get better financial aid.
Samantha Stuber: I actually have never heard of that one, although it doesn’t surprise me with the lengths that people go to.
EdSurge: She immediately brought up the even bigger college admissions scandal that came out earlier this year when federal investigators found that parents allegedly paid huge amounts to get their kids into highly-selective colleges, In those cases, the parents worked with a company that allegedly helped cheat on admissions tests bribe college officials or even helping kids falsely pose as student athletes to get into Ivy League colleges or other desirable schools like USC.
Stuber: That was not surprising at all either. It was surprising that it became such a big scandal because it happens so often to be honest.
I think there was a variety of different levels of families. Some that would go from moving to mortgaging their house and making sure that they can afford financials and go into whatever debt possible to go to these most elite schools.
There were those kind of families that made upwards of $300,000 a year and refuse to pay for their student’s education, which was really heartbreaking because they can afford to pay for their education and then they disqualify their students from being able to get any kind of aid. There was a whole different level and skew of where families were coming from.
EdSurge: Now I want to make super clear here, I’m not taking any sides and I’m certainly not saying that it’s okay to lie or commit fraud or do the college admissions equivalent of stealing a Lexus. To be fair, even that parent I spoke with at length said he wouldn’t do it either.
Schwiebert: I realized that the USC scandal that hit the in the news a couple months ago was a big deal and those people should be punished for fraud. I do believe that the issue on the ProPublica piece is important because it’s essentially fraud. I’m not going to beat around the bush. It’s a creative loophole but you’re really kind of not telling the truth about your financial situation.
I think the conversation needs to shift to: How do we determine need for students? Is the family really expected to bear the burden of the college education of a young adult who is going to be the beneficiary of that education? I feel it, especially because I’ve got a little one and two older ones I’ve got to figure out. I’ve got retirement coming into 15, 20 years I’d like to think.
It’s one of those things where I can appreciate the need for an education. But I feel like the person who should pay for it is the beneficiary of it, and not the people who raised them, who already spend a lot of blood, sweat and tears getting them to adulthood.
EdSurge: Let’s face it, the parents giving up guardianship of their kids are the extreme cases. The bigger policy issue is this question of who should pay for college and how much?
Many other people also benefit when a student gets an education. After all, by going to college, the person becomes a better employee, so businesses and the economy benefit. They become a better citizen, so our democracy benefits. It brings the students more earnings over a lifetime, and it helps them move out of their parent’s basement. What’s the right payment plan that also ensures access for those who really can’t afford to study unless they get help?