Suburban parents reportedly giving up custody of kids to get need-based financial aid

The Department of Education and several universities are investigating a scheme that has allowed children of wealthy parents to qualify for need-based financial aid.

According to a report by ProPublica Illinois, parents are giving up legal guardianship of their children during high school, and once the child applies for financial aid, the student declares themselves "financially independent" - meaning the parents' income and savings are excluded from consideration. This move allows families to use a loophole to exploit the financial aid system.

But unlike the recent college admissions scandal that has actress Lori Loughlin facing possible jail time, experts say this newly uncovered scheme is legal.

The report discovered dozens or more cases where parents hired lawyers to petition the court to turn over guardianship to a friend or relative so the student could be declared financially independent and qualify for financial aid.

ProPublica Illinois reporter Jody Cohen said she sifted through 1,800 probate petitions from 2018 and 2019, but more than 40 guardianship petitions stood out to her.

They were formal petitions filed by lawyers on behalf of well-to-do parents who were, for example, doctors and real estate agents in Chicago-area suburbs, giving up custody of their kids during their junior or senior year of high school.

In response, the Department of Education is suggesting changes be made to close the loophole.

It's adding language that says if a student enters into a legal guardianship, but continues to receive financial and medical support from their parents, they are still a dependent student.

The practice is raising questions on ethics as financial aid is limited and exploiting the loophole can take away from a potential student with a real need.

Kyle Westbrook leads the Partnership for College Completion, an advocacy organization for improving college outcomes for low income students.

"We think of it as hundreds of thousands of dollars that should have gone to low-income students and likely the difference between some students going to college and not going," said Westbrook.

Last year, more than 80,000 students who were eligible didn't get aid because the money ran out.

For low-income students that could mean the decision not to go to college.