College Financial-Aid Loophole: Wealthy Parents Transfer Guardianship of Teens | Hacker News Reader

College Financial-Aid Loophole: Wealthy Parents Transfer Guardianship of Teens

wsj.com

47 pointstysone40 comments

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.

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)

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

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...

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

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.

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

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

It’s called corrective implosion.

Adapt to survive... It's going to get a bit weird.

This isn't going to make things weird. Something else will, but government debt constantly fails to show any of the problems people claim it will.

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!"

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).

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.

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.

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.

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.

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.

If those requirements are stretching a $250k income, how exactly are people making $50k supposed to afford a family and retirement?

I think you know the answer. They aren’t.

$250k/year puts someone into the upper 5%.

I feel the same way. I do not live in America but it is the same in every country around the world. There is always a group of people that has ethics standards we do not have. They are the ones that sink the system.

"Of course, none of us are greedy, it’s only the other fellow who’s greedy." - Milton Friedman

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.)

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

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.

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.

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.

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

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.

Yup. I had to include both my parents tax information. It was assumed they would contribute a bunch of money, which zero was contributed from them. I got $0.00 in free money from parents or government. That was fun.

Yup, knew parents of good friends and my own that would help a little in a dire pinch but the expectation was to get scholarships and/or work through college for it. Makes sense particularly if you consider a family with 3 or more kids. I make good money but I ain't got half a million dollars to throw at Universities..

I've a dozen kids, so yeah...

As far as I can tell, the FAFSA is a bait-and-switch. You're enticed with grants and scholarships, but all you get is inadequate loans. I have never met anybody who got the grants and scholarships.

Perhaps it works if you are an independent student. For that you must do one of the following: wait until you are 24, get married, serve in the military, have a kid, go into foster care, or have your parents both die.

Or students that had a good relationship with their separated parents, but would deny any support from the wealthier parent in their loan applications.

Or students that had cash-paying jobs to keep their income low

Or those returning to school being penalized because they saved some funds in the intervening years (I guess this one's debatable... still annoying how they expected me to withdraw from my 401k equivalent, but didn't expect you to cash out your pension)

> Or students that had cash-paying jobs to keep their income low

So they committed tax fraud as well as financial aid fraud? (Presumably “cash” is another way of saying “unreported income.”

There are those that do, especially as students (often working in tip-heavy industries).

Just making the point that means-testing is fraught with hazards.

There were private funds as well as public funds. If you and I both contribute into pot of money for the poor, your don't get to have your children claim it back by saying the homeless person that should be getting that money is their guardian. These people are cheating instead of the harder thing of going to community college and then transferring to a 4 year college or simply not having 6 children which they couldn't afford to provide college educations for if that was important to them. It's not as though when get conceived of a child 18 years ago this trend wasn't fully in swing. They chose to buy an expensive house and send their other children to expensive colleges. Now they are abusing the system because things got hard. I didn't get a dime of money from my parents. I joined the military and worked a full time job at night in a factory while going to school full time during the day. This person is just the child of rich parents who are used to not working for anything. What have they taught their child? They are without an ethical core and should be called out for it.

In California people voted themselves Prop 13 so they'd stop having to pay for schools. College was free before then; now it isn't, and your K12 schools have to start foundations and constantly harass people into donating.

Those poor poor Cali colleges. University of California, Los Angeles/Endowment 5 billion USD

That size of an endowment gives them about $4,500 per student per year, so hardly enough to cover the full cost of a education. For comparison, Harvard has an 8x larger endowment for half the number of students.

"Their taxes" doesn't make sense as your tax liability by definition does not belong to you.

Tax is money owed in return for government services such as property law enforcement, without which nobody could own any property at all.

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