U.S. Department of Education wants to stop ‘student aid fraud scheme’ where parents give up custody through dubious guardianships

Federal and state officials say they want to close loopholes that allow families to get need-based financial aid they would not otherwise receive by giving up guardianship of their college-bound children.

The move, they say, could end “potential student aid fraud” when parents turn over guardianship of their children in hopes of obtaining a tuition break.

A spokeswoman for the U.S. Department of Education’s Office of Inspector General said the office has recommended modifying the language on federal financial aid forms following disclosure of the tactic, first reported by ProPublica Illinois on Monday. The Wall Street Journal also published a story late Monday about the issue.

“What we can tell you is that we are aware of this issue and suggested to the Federal Student Aid office (FSA) that it add clarifying language to the FSA Handbook that would help close possible avenues for this type of potential student aid fraud,” the inspector general’s spokeswoman said in a statement.

The new language would aim to ensure students involved in this kind of guardianship no longer qualify for aid if they continue to receive medical and financial support from their parents.

The Inspector General’s Office was not aware of any prosecutions to date involving “this specific type of student aid fraud scheme,” the spokeswoman added.

Officials with the Illinois attorney general’s office said Tuesday they also “have concerns” about the practice and will contact the state agency that administers a need-based grant “as we look into the matter further.”

State lawmakers also called for reforms.

ProPublica Illinois reported that dozens of suburban Chicago families, and perhaps many more, have given up legal guardianship of their teenage children to qualify for federal, state and university aid.

The parents — including lawyers, educators and a doctor — turn guardianship of their children over to relatives or friends sometimes months before they turn 18. By doing so, the children can then declare themselves financially independent and qualify for aid they would not otherwise receive.

Andy Borst, director of undergraduate admissions at the University of Illinois at Urbana-Champaign, said he is glad the practice has been exposed. The university first alerted the Department of Education to these cases in July 2018.

“I’m pleased that this issue has been brought to light and is being discussed widely,” Borst said. “I am hopeful that additional action can be taken to close this loophole.”

While ProPublica Illinois identified close to four dozen families in the northern suburbs of Lake County alone that filed similar petitions for guardianship, the practice appears to be more widespread. An attorney who has filed petitions in Lake County said she has also filed similar cases in Cook, DuPage, Kane, Will and McHenry counties.

ProPublica Illinois is continuing to investigate.

Illinois lawmakers on Tuesday also called for an examination of any state laws or rules that allow wealthy families to take advantage of the Illinois Monetary Award Program, or MAP, grant. Some 82,000 students were eligible for the grant last year but did not receive it because there wasn’t enough money. The grant, up to about $5,000, is awarded on a first-come, first-served basis.

“It looks like theft from taxpayers and theft from students and families who legitimately deserve need-based financial aid,” said state Sen. Pat McGuire, D-Joliet, who chairs the Senate higher education committee.

McGuire said he plans to contact Gov. J.B. Pritzker’s office, the Illinois attorney general’s office and the Illinois Student Assistance Commission, which administers the MAP grant, to look for ways to close any loopholes.

If that doesn’t work, he said, he will consider filing new legislation.

“It’s especially galling because the legitimate need for MAP is proven by the fact that not everyone who applies for it gets it,” McGuire said. “And even those who get it, in many cases, still are required to take out loans and work more hours per week than is advised to afford college.”

State Sen. Cristina Castro, D-Elgin, said she shared McGuire’s concerns.

“It is particularly troubling,” she said. “You think of how we’ve increased MAP funds, but we always run out.”

Castro said she was disappointed to read that one of the parents identified by ProPublica Illinois who had given up guardianship of her teenager was an assistant schools superintendent.

“That was mind-boggling,” she said. “Those are people who should and are able most of the time to pay for that education. And that’s troubling that they would go to great lengths not to.”

The students involved in these cases have gone on to be accepted at public universities and private colleges across the Midwest and as far away as California, according to their social media accounts and student newspapers.

A spokesman for the University of Missouri on Tuesday said officials have decided to pull university-based financial aid if they are able to confirm the student “misrepresented their financial situation for the sole reason to get need-based aid when they otherwise would not be eligible.”

The university’s financial aid office continues to investigate.

So far, the spokesman said, it has found “an extremely small number” of cases.

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