Giving up guardianship for aid.......

[ucbalumnus]

@privateID

Although this behavior seems wrong (I have no idea if it is illegal or not), I have wondered what is right/wrong when it comes to gaming the system for financial aid purposes. […] But that article makes me think of what is right/wrong when it comes to financial aid strategies.

Perhaps a somewhat analogous situation would be what people sometimes do to reduce their income taxes, and the increasing complexity of the Internal Revenue Code to close those loopholes, or leave them open as political favors to the well-connected.

[ucbalumnus]

@GloriaVaughn

@LakeWashington .You are right. In the early 2000’s kids were moving out and going for independence. It worked for several years until collages caught it.

Another example: the CSS Noncustodial Profile ostensibly exists to stop “sham divorce” situations from getting more financial aid. But it also stops many kids of ordinary uncooperative divorced parents from getting financial aid (possibly an intended effect by those colleges that want to limit the number of financial-aid-needy students they enroll while still claiming to be “need blind and meet full need”).

What may happen is that if the Education Department and colleges take steps to stop this kind of “changed guardianship to game financial aid”, those who actually do have changed guardianship for reasons other than gaming financial aid will face extra suspicion, paperwork, bureaucracy, etc…

[AlbionGirl]

I think the Education Dept is starting to crackdown on these kinds of abuses. This is the second I have read about this week. The other concerned graduates participating in income based repayment programs who are reporting suspiciously low income and/or a high number of people in their households in order to minimize or eliminate their loan repayments.

The federal watchdog agency says it identified 95,100 cases in which borrowers were approved as having no income even though it appears they were earning money. Using wage data from the Department of Health and Human Services, investigators found that borrowers in a third of those cases may actually have been making $45,000 a year or more, including some who topped $100,000

The review also found 40,900 approved plans in which borrowers said they had family sizes of nine or more, which investigators said were “atypical” and amounted to statistical outliers. About 1,200 of those cases involved borrowers who said they had families of 16 or more. The department also does not require borrowers to provide documentation proving their self-reported family sizes.

Perhaps the scrutiny will discourage future students from considering these scams.
https://www.pbs.org/newshour/nation/federal-watchdog-finds-potential-fraud-in-student-loan-repayment-plans

[cshell2]

Back when I went to college (late 80’s), all one had to do to be declared independent w

@AlbionGirl

I think the Education Dept is starting to crackdown on these kinds of abuses. This is the second I have read about this week. The other concerned graduates participating in income based repayment programs who are reporting suspiciously low income and/or a high number of people in their households in order to minimize or eliminate their loan repayments.

How can they do that? Doesn’t income, and number of dependents have to match IRS numbers?

[sushiritto]

Figures. Chicagoans…what a bunch of crooks. :lol:

[blossom]

If someone wants to hide assets by dumping money into a life insurance policy or an annuity which otherwise doesn’t make sense for their financial situation, at the end of the day, the only person being hurt is the owner of those assets. I know folks who are so proud of having figured out this “technique”- and when I run the numbers and point out to them that they are losing X amount of money (in unnecessary fees, or in forgone appreciation, or liquidity, or all three) in order to get half of X in additional aid- they get very PO’d at the “expert” who sold them those annuities and insurance products. So yes- greedy on the front end, and foolish on the back end. It would be hard to justify some of these investment products for people with college aged kids in most situations. Putting the max into a 401K? Doesn’t bother me at all. Again- if you’re doing it to “hide” from a financial aid officer, you become the victim if you need the money in a hurry and have to pay the taxes just when you are facing a liquidity crunch.

This custody/guardianship scam- I am speechless.

[cshell2]

Unless you can qualify for Auto-Zero (26K AGI) where income and asset questions are ignored, putting money in a 401K doesn’t do anything anyhow since it’s added back in as non-taxable income on the FAFSA.

[Groundwork2022]

"Unless you can qualify for Auto-Zero (26K AGI) where income and asset questions are ignored, putting money in a 401K doesn’t do anything anyhow since it’s added back in as non-taxable income on the FAFSA. "

Not if you do it before December of your student’s sophomore year of HS.

[cshell2]

@Groundwork2022

"Unless you can qualify for Auto-Zero (26K AGI) where income and asset questions are ignored, putting money in a 401K doesn’t do anything anyhow since it’s added back in as non-taxable income on the FAFSA. "

Not if you do it before December of your student’s sophomore year of HS.

I guess I’m not understanding. What good does that do if you’re trying to show reduced income?

[ucbalumnus]

@cshell2

Unless you can qualify for Auto-Zero (26K AGI) where income and asset questions are ignored,

How long will the “auto zero” remain once someone notices that there are some FIRE*-type parents who are retired with huge assets but low realized income during the time that their kids are in high school and college?

*as in “Financially Independent, Retire Early” people who lived on much less than their (typically upper middle to upper) income when young, building a huge asset stash that now generates more investment gains (not necessarily all realized income) than they continue to live on.

[AlbionGirl]

@cshell2
No, evidently the Education Dept doesn’t have access to federal income data that could be used to verify borrowers’ earnings.

They concluded that the department “does not have procedures to verify borrower reports of zero income, nor, for the most part, procedures to verify borrower reports of family size.” Borrowers applying for the repayment plans can check a box indicating they have no income, and the department generally takes them at their word with no further documentation needed, the investigation found.

However they are now planning to change this which should put a stop to the fraud.

[Groundwork2022]

^ If you are saving a lot for college, shifting some of the money that would have gone into the college savings into a 401K instead will reduce your qualifying assets later on - but not income. While I do advocate saving for retirement, frontloading into a 401K is not an effective strategy to increase financial aid - it is only going to make a slight difference at the most. As Blossom said, you pay a tax on it later if you find yourself in a liquidity crunch.

Not disagreeing with you, just pointing out that January of sophomore year on is the timeframe FA considers.

[BelknapPoint]

I guess I’m not understanding. What good does that do if you’re trying to show reduced income?

It’s a strategy to report reduced assets, not income.

[BelknapPoint]

…they get very PO’d at the “expert” who sold them those annuities and insurance products.

I bet their attitude doesn’t improve when they learn how much the “expert” made in commission on the sale.

[cshell2]

@BelknapPoint

It’s a strategy to report reduced assets, not income.

I guess. It doesn’t seem like it would do much though as assets are such a small part of the equation compared to income.

So, you stick an extra 30K/year in retirement accounts (between both parents) for say 4 years prior to FAFSA, shielding 120K. At 5.6% of assets going to EFC that’s less than 7K EFC reduction. Meanwhile, If you’re making 150K/year between the two of you you’re probably already full pay at any state school based on income alone anyhow.

[BelknapPoint]

1. Moving money to a child owned 529 plan so the 529 does not appear on sibling financial aid forms.

Moving parent money to a child-owned 529 is an irrevocable gift to the child, whether the parent realizes this or not.

2. Shifting money into an insurance cash value account (some life insurance policies have this feature) where that money is not counted.

See blossom’s comments in post #45.

3. Putting more money into 401Ks than you would’ve to prevent that money from being counted.

There’s generally nothing wrong with increasing your retirement savings (within the current IRS limits, of course).

[poblob14]

According to the FAFSA website, you have to provide your parents’ financial information even if there is a legal guardian. Even in “crooked Chicago.” https://studentaid.ed.gov/sa/help/who-is-parent

[BelknapPoint]

I guess. It doesn’t seem like it would do much though as assets are such a small part of the equation compared to income.

So, you stick an extra 30K/year in retirement accounts (between both parents) for say 4 years prior to FAFSA, shielding 120K. At 5.6% of assets going to EFC that’s less than 7K EFC reduction. Meanwhile, If you’re making 150K/year between the two of you you’re probably already full pay at any state school based on income alone anyhow.

It depends on the school and the family’s particular financial situation. At a meets full need school, your example could lead to a savings of nearly $27k over four years. That’s not chump change.

[cshell2]

@BelknapPoint

I guess. It doesn’t seem like it would do much though as assets are such a small part of the equation compared to income.

So, you stick an extra 30K/year in retirement accounts (between both parents) for say 4 years prior to FAFSA, shielding 120K. At 5.6% of assets going to EFC that’s less than 7K EFC reduction. Meanwhile, If you’re making 150K/year between the two of you you’re probably already full pay at any state school based on income alone anyhow.

It depends on the school and the family’s particular financial situation. At a meets full need school, your example could lead to a savings of nearly $27k over four years. That’s not chump change.

I’ve always been of the opinion that you should pile as much into retirement accounts as you can before anything for so many more reasons than financial aid, so I have a hard time thinking about this as cheating the system.

As a disclaimer, we do qualify for auto-zero because I do fund retirement heavily, but I’m starting with an income in the 40’s.

[BelknapPoint]

According to the FAFSA website, you have to provide your parents’ financial information even if there is a legal guardian. Even in “crooked Chicago.”

Where does that web page say that a student must provide the parent’s financial information even if there is a legal guardian?