A college financial-aid administrator says well-to-do students from suburban Chicago have tried for several years to use a guardianship loophole to qualify for financial aid intended for needy students.
Kelsey Gerber, associate director of financial aid at Loyola University in Chicago, said Wednesday that a colleague at DePaul University contacted her during the 2017-18 school year asking if she had come across any students who had obtained legal guardians just before their 18th birthday so they could claim to be financially independent from their parents.
DePaul “had several come in all at once,” Gerber said. “At that time, we didn’t have any, but since then, we have been on high alert.”
Loyola has since had one in each of the last two years, but neither student responded when the school asked for more information and neither ended up enrolling, Gerber said. Officials at DePaul could not immediately be reached for comment Wednesday evening.
Several dozen similar guardianship cases were filed over the last 18 months in affluent Lake County alone, according to the Journal and ProPublica, which found that families with incomes of $250,000 a year in some cases gave up custody of their teenagers to friends, relatives or even business associates to qualify for financial aid.
UI withdraws own aid
While not illegal, the practice was criticized as a “scam” by University of Illinois Admissions Director Andrew Borst and others.
UI officials discovered the practice a year ago after being contacted by a high school counselor in an affluent Chicago suburb who wondered why one of his students was invited to campus orientation programs for lower-income students, Borst said.
“That kind of tipped us off that something wasn’t right with that student’s aid package,” said UI Financial Aid Director Michelle Trame.
After digging into the student’s documentation, Trame discovered that the applicant “probably had family resources that should have been reported.”
Borst said he heard from “multiple counselors” around the same time with similar questions.
The UI reported the matter to the Department of Education’s Office of Inspector General and started taking a closer look at all of its guardianship cases, Trame said.
It identified three other cases during last year’s admissions cycle, from students who enrolled in fall 2018.
It’s also reviewing 11 students admitted for this fall who indicated that they’re in guardianship arrangements, though that number is still “fluid,” UI officials said.
The four students last year were admitted to the UI and still received their need-based federal Pell grants (about $6,000 each) and state Monetary Award Program grants (about $5,000 each). That eligibility is determined through the Free Application for Federal Student Aid, so the UI didn’t have much flexibility, Trame said. And admissions decisions are separate from financial aid, Borst said.
“Those students are still getting $11,000 even though they might not have been eligible otherwise,” he said.
But the UI withdrew its own financial aid for those students. Trame wouldn’t provide specific amounts for privacy reasons but said “institutional aid” typically ranges from $8,000 to $10,000 each — potentially $32,000 to $40,000 for the four students.
“We have limited funding available. We want to make sure our funds are getting to the right students,” Trame said.
The U.S. Department of Education moved this week to close the guardianship loophole, updating the FAFSA guide for the upcoming financial-aid cycle this fall to clarify guidance about emancipation and legal guardianship, said spokeswoman Liz Hill. The new rules do not allow students in “estate guardianship,” as opposed to guardianship of their “whole person,” to claim to be independent from their parents.
“The laws and regulations governing dependency status were created to help students who legitimately need assistance to attend college. Those who break the rules should be held accountable, and the department is committed to assessing what changes can be made — either independently or in concert with Congress — to protect taxpayers from those who seek to game the system for their own financial gain,” she said Wednesday.
In the meantime, colleges have stepped up scrutiny of applicants.
This year, the UI is asking more questions about the reasons for guardianship and how the student is supported, Borst said.
Previously, applicants who reported on the FAFSA that they were in guardianship simply had to provide a copy of the court records, Trame said. Now they have to fill out an additional form to be considered for UI need-based aid.
It asks why they obtained a guardian — for example, inability of their parents to pay, enhanced financial-aid opportunities, the death or disability of a parent, or neglect or abandonment.
It also asks whether they still have contact with their parents, how much support they receive, and who is paying for their cellphone, insurance or a car if they have one, Trame said.
“Depending on how they answer those questions, we feel like we’re able to get a sense of if the guardianship was entered into for the correct purposes,” she said.
'It is unethical'
If they did it for financial reasons, and their parents are still providing health insurance or paying their phone bills, the UI asks for the parents’ income and asset information, and that is used to determine the amount of aid from the UI, she said: “We can’t do anything about the federal and state aid already awarded.”
The UI used several key indicators to determine which guardianships to flag, including those arranged during a student’s junior year of high school or shortly before turning 18, Trame said. Most children enter legitimate guardianship at younger ages, she said.
Borst said the UI also noticed last year that all four questionable applicants were from Lake County, and media reports later showed that two law firms had handled most of the cases.
University administrators acknowledged the burden of rising college costs but say these students are effectively taking money away from applicants who are truly low- or middle-income.
The state’s MAP program last year awarded grants to about 129,000 students, but about 82,000 more were shut out because there wasn’t enough funding to pay for all who qualified, said Lynne Baker, spokeswoman for the Illinois Student Assistance Commission.
The MAP program received an additional $50 million in this year’s state budget, allowing it to serve more students and expand grants, but “there will still be more demand than funding,” she said.
“It doesn’t help our students who do have financial need for these students who come from affluent families to be getting grants that should only go to families with high need. It is unethical,” Gerber said.
'We stopped a snowball'
It’s unclear how widespread the problem is, as state laws on guardianship vary, Borst and Trame said.
And universities don’t have a huge number of guardianship cases. The UI has about 100 among all 33,673 undergraduates, and Gerber said Loyola has about half that number.
The number of MAP recipients who reported guardianship has stayed right around 1,200 for the past four years, down from 1,525 in fiscal 2015, according to figures from the Illinois Student Assistance Commission.
But Borst said he believes public knowledge of the practice has prevented what could have become a major problem.
“It felt like we stopped a snowball from rolling and getting bigger,” he said. “What do we do when there’s 1,000 students coming from Lake County or well-to-do areas that are doing this practice that’s taking MAP money away?”
That said, administrators also don’t want the added safeguards to put up barriers for students who are in legitimate guardianships to escape harmful situations. Those students tend not to have as much support in navigating the financial-aid process, officials said.
“We’re trying to find the right balance,” Trame said.
Baker said student assistance commission has reached out to the Illinois Attorney General’s Office on the issue, and lawmakers are also weighing in.
“Our sense is the vast majority of the students who file for guardianship do so for legitimate and, sadly, often tragic reasons. If there is a loophole in or misconstruction of federal or Illinois law that would allow students to receive state or federal need-based aid for which they are not otherwise eligible, we would support efforts to address this while still preserving eligibility of those who file for guardianship for legitimate reasons,” Baker said.
Borst said he was encouraged by the follow-up from state and federal officials.
“I have a feeling now that this is making national news, the loophole will close,” Gerber said.
Editor's note: Based on information from Loyola, earlier versions of this story indicated that officials there learned of this practice three years ago. It was actually during the 2017-18 school year.