Dozens of suburban Chicago families have been using a legal loophole to help their children get need-based college financial aid and scholarships. By their parents' forfeiting legal guardianship, students are able to declare financial independence so they qualify for federal, state and university financial aid.
The practice was uncovered in north suburban Lake County, Illinois, where nearly four dozen such guardianships were filed in the past 18 months, according to ProPublica. Identical petitions have been filed in at least five other Illinois counties. By giving up legal guardianship during their children's junior or senior year in high school to a relative, friend or even co-worker, parents were able to "financially divorce themselves from their kids over the past year and a half." In such instances, only the children's earnings are considered in their financial aid applications, not the family income or savings.
In one case, a student whose parent owned a $1.2 million home only had to declare $4,200 in income from a summer job. Despite having a household income greater than $250,000, the family had already spent roughly $600,000 putting multiple older children through college, leaving no equity in the home and have little cash on hand and in savings for their daughter. After her parents transferred legal guardianship to a business partner, the daughter received a $27,000 merit scholarship and an additional $20,000 in need-based aid, including a federal Pell grant, which she will not have to pay back. The daughter is responsible for $18,000 a year, which her grandparents pay. The parents learned of this strategy from a college consultant company called Destination College, located in Lincolnshire, Illinois; it boasts having saved families upwards of $40,000 per year per student in college costs.
"Wealthy families are manipulating the financial aid process to be eligible for financial aid they would not be otherwise eligible for. They are taking away opportunities from families that really need it", according to Andy Borst, director of undergraduate admissions at the University of Illinois at Urbana-Champaign. The practice, which is legal, caught the Education Department's attention "amid a spate of guardianship transfers” in the Chicago area and several Illinois universities are investigating the matter. The Inspector General Office suggested adding clarifying language to the Federal Student Aid handbook, such as: "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 "so-called opportunity hoarding," Borst claims, "takes away resources from middle- and low-income students," and while there is no legal issue, he questions the ethics of the strategy. For Mari Berlin, an attorney who represents families who employed this strategy, "the guardianship law was written very broadly" and "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.