
College Financial-Aid Loophole: Wealthy Parents Transfer Guardianship of Teens - tysone
https://www.wsj.com/articles/college-financial-aid-loophole-wealthy-parents-transfer-guardianship-of-their-teens-to-get-aid-11564450828?mod=rsswn
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MrLeap
I briefly considered doing something like this when I was a senior in high
school trying to find a way to college. My mother was poorer than dirt, and I
lived with her until she kicked me out of the house at 14.

My father took me in from then. From a very early age my father indicated I
should make my own way through school. He'd shout "Full ride!" every time I'd
get a B or less on a report card.

It was formative enough that I got a savings account when I was 10 years old
or so. From then on, I saved almost all the money I got from mowing lawns,
birthdays, and hanging papa johns mailers on doors at apartments. By 14, I had
only accumulated about 500$, but every cent was post marked for my future
tuition. I was dumb with excitement every time I got one of those ~.39 cent
interest credits on my mailed statements. It was pretty much the only mail I
ever received, once a month. When my mother kicked me out, she emptied my
account immediately. By policy, an adult was required to have their name on
the account of a minor. Even though it's not really that much money, I'm still
a little bitter about it.

When I was reading through strategies for filling out the FAFSA, saying I
lived with her would have been a haymaker. I didn't when it occurred to me
that any mail to her house indicating what I had done would immediately set
the wheels in motion for her to fraudulently sue my father for child support.

If it weren't for the fear of her, I suspect I would have done it, and felt no
shame in doing so.

I've always felt like there should have been SOME consolation prize. Sorry tax
payers. Lucky for you I never did it. Lucky for me my father stepped up
despite years saying he wouldn't give me a dime. He ended up covering what my
loans, small scholarship and job income didn't.

~~~
cellularmitosis
If it is any consolation, I have a twin sister who managed to squirrel away
$2k by the end of high school, while I had $50 to my name. When FAFSA came
back, I qualified for exactly $2k more in aid than she did. If your $500
hadn’t been taken from you, it likely would have affected the amount of aid
you had received.

(This was my first “Don’t naively do the right thing and expect the system to
reward you. Do the right thing by individuals, but when it comes to the
system, read the rules and leverage them all you can” moment)

~~~
toomuchtodo
Fun fact: Retirement assets don’t count towards you financial asset
calculation for aid. Fund that Roth IRA first kids!

------
melling
We really did break America.

Now everyone is looking for loopholes or they want to subsidize everything.

Of course, the subsidy is soon folded into the price and quickly makes the
problem worse.

[https://www.forbes.com/sites/camilomaldonado/2018/07/24/pric...](https://www.forbes.com/sites/camilomaldonado/2018/07/24/price-
of-college-increasing-almost-8-times-faster-than-wages/)

Healthcare, the cost of infrastructure, trillions in unfunded pensions ... now
we’re adding a trillion in debt every year.

I don’t really see how this works itself out

~~~
TAForObvReasons
Everyone has been looking for loopholes for a very long time, and it turns out
that the winners, for decades, have been those that discover and most
effectively exploit them. Nothing is new except for possibly the brazenness.

Consider Amazon, whose founder is the wealthiest person in America. Its
existence and early strength to a large part is due to a sales and use tax
loophole that was eventually fixed.

~~~
parineum
That's what made online shopping attractive, not Amazon specifically.

~~~
TAForObvReasons
That multiple companies benefited from a loophole doesn't magically make it
any less of a loophole.

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SilasX
Yeah that's kind of a danger when you have income-based aid. I remember
hearing about related schemes where e.g. a couple will get divorced and give
custody of the children to the lower-earning spouse so that said spouse can
qualify for ACA exchange (Obamacare) subsidies and thus get cheaper
healthcare.

It _doesn 't mean the costs outweigh the benefits_, but you have to be careful
about what behavior you're incentivizing and what you plan to do about that.

It's always tempting roll your eyes and say, "Come on, no one's going to
legally disown their children/get divorced/have a child out of wedlock/pass up
work just to game an aid policy!"

~~~
gizmo686
I'm still not clear what the actual benefits are. In effect, adding a means
test to your aid is just a tax. It just happens to be a tax that is hard to
reason about and causes all sorts of weird effects. Wouldn't it be simpler to
give everyone whatever subsidy we wanted to give; and as a separate matter
(possibly simultaneously), increase taxes on the "richer" people (where richer
is whatever we would have determined is wealthy enough to not need
assistance).

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jedberg
I know someone who tried to do this. It failed because they didn't fully
transfer their child so instead of increasing financial aid it reduced it
because somehow they had income from _three_ parents counting against them
(the two real parents and the "guardian").

It eventually got sorted out but it was quite hilarious for a while. The worst
part was that the student had nothing to do with it.

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kemiller
This is cowardly. If I’m rich enough by the time my kid is in college I’d
consider it a duty to pay full price. I got financial aid and it’s pretty
sickening to see people using a program meant for those who can’t go without
the help.

~~~
gedy
It's not so black and white to call these numbers "rich". $250k sounds like a
lot, but a family, mortgage, retirement savings evaporates that to middle
class in many parts of the country.

~~~
asdfasgasdgasdg
In Chicago, you really ought to be able to manage on $250k. There are nice
houses in just about any neighborhood you want to live in on sale for less
than $600k. That's $3000/mo monthly payments, plus say $15k of taxes, for
$50k/y of housing costs. Food is, say, $20k, and transport another $10k. So
you have $80k spent on necessities. If we assume a 40% average tax rate and an
income of exactly $250k, you have $70k/y of slack. (To be clear, I understand
people have other expenses, but I also think $600k is a pretty generous
housing allowance in Chicago. However, the parents in question inexplicably
spent $1.2M.)

Sure, it'll be expensive to send four kids to private school . . . so, don't
do that? Or pay only part and use loans for the rest? But in reality the
financial situation is probably even rosier than this, but they're probably
squandering the money.

~~~
ImprovedSilence
You left out retirement. Assuming a two income household, that’s near $40k for
401k contributions. Assume Roth for sake of convince for tax calculations.)
Healthcare likely costs 6-12k/year for a family too. (Premium plus
deductibles, and contributions to HSA account.). If any kids are in daycare,
that’s 12k per kid, probably closer to $24k near major cities.

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rayiner
I bet there is tax fraud in at least some of those cases. (E.g. slipping up
and still claiming the kid as a dependent.)

------
tomohawk
Why not? They provide the most funding for it through their taxes.

~~~
cataphract
It's anyway debatable that the parent's earnings should be taken into
consideration. I knew plenty of people whose parents were unwilling to finance
their college or they were even estranged. These students got no aid or a
reduced amount because of that.

Just another way society punishes those not lucky enough to be born to the
right parents.

~~~
Pfhreak
I went through basically this. Worked full time while I was at school at
various jobs to make ends meet.

But I don't resent the school system for denying me aid. I understand that I
represent a very small population of people who:

1) Want to go to college

2) Had very wealthy parents

3) Wanted nothing to do with said parents

In basically every other case, the system works reasonably well, and I'm not
sure we should be making financial aid easier to get for the wealthier folks
just because a few folks like me come along every year.

~~~
cannonedhamster
And you're how the system should work. I grew up to middle class parents but
was largely in the same situation, except my parents had nothing to help with.
Multiple bankruptcies, a failed business, and marital problems eventually led
to my childhood home being foreclosed on. I've seen both wealthy and poor
alike game the system. It's frustrating, especially when the hard times are
from their own poor decision making. One family I knew could have entirely
paid off their home, bought a modest used vehicle the desperately needed, and
saved some money for college. They blew it on giving it away to friends and
family vacations. Their car fell apart and their home was foreclosed on, their
children were forced to drop out of college all because they made poor
decisions and refused any attempts at listening to the warning we tried to
offer then that they were making poor decisions. These were people below the
poverty line. If they'd waited a single year they would have been able to have
it all with what they and from paying off their mortgage.

By no means am I claiming to be perfect financially. We moved before we were
ready because the neighbors we'd previously been close with became resentful
as our financial situation improved beyond theirs. They would do really insane
things, burning trash in their yards immediately after we washed our cars to
get our cars covered in ash, putting a floodlight directly into our bedroom
that would go off randomly at night, blocking our driveway. We bought a house
below what we could have in a moderately nice, but not upscale neighborhood.
It took us months of searching for the right house. I have to drive a bit
farther for work when I can't work from home, but saving thousands a year in
mortgage payments and living in what we've made our dream home is worth it to
us.

People like you are what makes the system better. Putting in the work and
earning it. I bet you're awesome at what you do.

~~~
bigred100
I’m astounded that someone would waste their time on such petty nonsense.
Maybe they’d have a chance at making more money if they didn’t waste their
time engaging in such stupid antics

~~~
cannonedhamster
We were rather shocked as well. We were close enough that at one point we
helped them pay their mortgage when they were struggling one month and had to
choose between feeding their kids and paying for their house. It wasn't a huge
mortgage and we were single and doing very well at the time so it wasn't like
we were saints, but we thought we were good friends. Then the wife, who never
worked, had a mid life crisis and things went wildly downhill fast. We used to
have an awesome little dead end street too. Oh well.

