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It appears to be technically legal
Some parents of students who would not normally qualify for college financial aid are exploiting a loophole in the rules by giving up custody of their children late in high school, ProPublica Illinois reported.
An investigation by ProPublica revealed that some Illinois students have received need-based financial aid despite coming from relatively affluent families with parents who are doctors or lawyers—and while it appears to be technically legal, it is likely taking away aid from students with an authentic financial need.
"It's a scam. Wealthy families are manipulating the financial aid process to be eligible for financial aid they would not be otherwise eligible for," Andy Borst, director of undergraduate admissions at the University of Illinois at Urbana-Champaign told ProPublica. "They are taking away opportunities from families that really need it."
How does it work?
There are some students whose parents make too much money to qualify for need-based financial aid. But, some of these parents either feel they would struggle to pay, or simply don't want to pay, the high costs of a college education.
So, in order to allow their child to apply for financial aid as an independent, rather than based on parental income, parents are relinquishing custody of their children during the junior or senior year of high school to close friends or relatives. Under these guardianship arrangements, students are evaluated as financially independent for the purposes of college financial aid.
"..."a student in legal guardianship does not need to report parent information on the FAFSA form because he or she is considered an independent student," the U.S. Department of Education website reads.
One attorney who has represented multiple clients seeking these guardianship arrangements has used the justification that "the Guardian can provide educational and financial support and opportunities to the minor that her parents could not otherwise provide."
Just vague enough to not be a total lie, while obscuring the true intent behind the custody change.
What's being done about this?
Some schools are catching on, such as the University of Illinois at Urbana-Champaign, which has identified some of these students and revoked their institutional financial aid. They still, however, qualify for thousands of dollars in state and federal aid. So, administrators like Borst hope the Department of Education can do something.
"It's not like these families are close or on the tipping point (financially)," Borst told ProPublica Illinois. "I don't know how big this is, but I hope we can nip this in the bud now. ... If it is legal, at what point is it wrong?"
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