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Here\u2019s a \u201cscandal\u201d reported by ProPublica Illinois yesterday:<\/p>\n
\u201cParents Are Giving Up Custody of Their Kids to Get Need-Based College Financial Aid<\/a>,\u201d with the subtitle\/excerpt, \u201cFirst, parents turn over guardianship of their teenagers to a friend or relative. Then the student declares financial independence to qualify for tuition aid and scholarships.\u201d<\/p>\n Some excerpts:<\/p>\n Dozens of suburban Chicago families, perhaps many more, have been exploiting a legal loophole to win their children need-based college financial aid and scholarships they would not otherwise receive, court records and interviews show. . . .<\/p>\n Parents are giving up legal custody of their children during their junior or senior year in high school to someone else \u2014 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. . . .<\/p>\n While ProPublica Illinois uncovered this practice in north suburban Lake County, where almost four dozen such guardianships were filed in the past 18 months, similar petitions have been filed in at least five other counties and the practice may be happening throughout the country. ProPublica Illinois is still investigating. . . .<\/p>\n When filling out the application for financial aid, called the Free Application for Federal Student Aid, or FAFSA, students have to prove formal separation from their parents to qualify as an independent. One of the few ways to do that is through a legal guardianship change. Students cannot just declare financial independence \u2014 even in cases where parents are able to pay but refuse to do so, Borst said.<\/p>\n According to the U.S. Department of Education website, \u201ca student in legal guardianship does not need to report parent information on the FAFSA form because he or she is considered an independent student.\u201d Independent students are evaluated for financial aid based on their own income and resources and not that of their parents.<\/p>\n<\/blockquote>\n And here\u2019s my reaction:\u00a0 good for them!<\/p>\n OK, maybe that\u2019s going to far.\u00a0 But I have a hard time getting upset \u2013 I find the manipulation of finances that many families engage in to qualify their elder for Medicaid nursing home coverage, to be no different, and, unless I\u2019m mistaken, that\u2019s generally accepted as a \u201cthing you have to do,\u201d however unethical it is.\u00a0 (ElderLawAnswers.com provides a handy article, \u201cHow to Use a Trust in Medicaid Planning<\/a>\u201d about how to preserve an estate for children while still qualifying for Medicaid.)<\/p>\n The article does not report (and does not have access) to information on the family\u2019s finances, though the students in question are attending public universities.\u00a0 They\u2019re not seeking out the Harvards and Sarah Lawrences and other jaw-droppingly-expensive private colleges.<\/p>\n But the reality is this<\/a>:<\/p>\n Prior to 1992, if your parents, despite a middle-class income, were unwilling to pay for your tuition or were unwilling to go into debt if they hadn\u2019t saved for this purpose, you had a reasonable alternative:\u00a0 support yourself independently for two years (living in your own place and earning enough to pay for your expenses), then apply for financial aid as an \u201cindependent student.\u201d<\/p>\n At that point, new rules were implemented.\u00a0 Any student under the age of 24 is deemed dependent on his\/her parents, and their income must be included in the FAFSA, the financial aid form, with exceedingly narrow exceptions, including marriage, homelessness, literally uncontactable parents, jailed parents, or in case of abuse.\u00a0 A student whose parents refuse to complete the FAFSA has no financial aid options except unsubsidized loans (and, I recall, when I wrote the above-linked blogpost, the only advice for students in such a situation was, \u201cbeg and plead and tell them that it\u2019s their moral responsibility to do so, and even if they won\u2019t pay your tuition, they should at least disclose their income on the form\u201d).<\/p>\n What\u2019s more, the financial aid formulas calculate an Expected Family Contribution with a formula which ratchets up to expecting that families spend nearly 50% of \u201cdisposable income\u201d on college tuition.\u00a0 (What follows is from a 2013 blogpost<\/a>, so it\u2019s possible that there\u2019s been a significant change, but unlikely.)\u00a0 Specifically, after-tax income of $30,000 for a family of 5 is \u201cprotected,\u201d the next $30,000 has applicable rates of from 22% to 40%, and starting at $60,000 (more or less; probably a bit higher due to inflation), 47% of the family income is expected to be usable for paying college tuition.\u00a0 In addition, parents are expected to be able to spend 1\/8 of their non-pension assets, each year, on tuition.\u00a0 (This is not the same as liquidating your assets after 8 years of kids in college; it\u2019s 1\/8 of your current assets, then 1\/8th of what\u2019s left next year, and so on.)<\/p>\n Do parents really do this?\u00a0 Do they really cut back their finances by such incredible sums?\u00a0 I have a hard time believing it.\u00a0 It\u2019s merely a way of allocating financial aid, and funneling middle-class kids into (unsubsidized) student loans\/parental loans, because, when you do further reading, you immediately land on the advice that, gosh, if you can\u2019t actually afford to pay the money that\u2019s been deemed to be your EFC, then you\u2019re invited to click the link to learn more about PLUS (parent) loans.\u00a0 Oh, and on top of that, in many schools indirectly and in some schools quite out-in-the-open, part of what those parents are paying for, are subsidies for their children\u2019s classmates (see here<\/a> and here<\/a>).<\/p>\n Now, I do not mean to make the case that \u201cthis proves we need free tuition.\u201d\u00a0 We need more and better ways to reduce the cost of college, and to reduce the perceived necessity of a 4 year degree (plus, increasingly, master\u2019s degrees), enabling more young adults to enter the workforce after trade school, apprenticeships, 2 year degrees, or other forms of learning, plus better education at the high school level so that baseline communication\/thinking skills are already in place, and the prescription of \u201cdo exactly what we\u2019re doing now, except with the federal government funding everything,\u201d is preposterous.<\/p>\n But such a system, with Expected Family Contributions that have no bearing to reality, certainly communicates that the EFC is not meant to be \u201creal\u201d at all, but is all simply part of a bigger game in how federal and \u201cinstitutional\u201d (that is, both segregated funds from donors and money from the general university budget) aid is allocated.<\/p>\n\n