Loophole allows families to get aid meant for needy students

The U.S. Education Department is being urged to close a loophole that has allowed some wealthy families to get federal, state and university funding that's meant to help needy students.

Federal authorities were notified last year that some parents in Illinois were transferring custody of their children to friends or relatives to make it appear they came from poorer backgrounds and to make them eligible for more financial aid.

Disclosure of the practice comes at a time of intense debate over the fairness of college admissions. Earlier this year, federal authorities say they uncovered a sweeping scheme in which wealthy parents paid bribes to get their children into elite universities across the nation .

In the latest case, officials at the University of Illinois reported the scheme to the Education Department's independent watchdog after finding several cases there. In total, the school says it has found 14 students involved.

Andy Borst, the university's director of undergraduate admissions, said the strategy appears to be legal but ethically questionable. By tapping into funding for needy students, he said, wealthy families are depriving students who legitimately need the help.

"Financial aid is not infinite," he said. "There are students who are eligible for need-based aid who are not receiving their awards because the state runs out."

The Education Department's inspector general declined to say whether it's investigating. But it's recommending that the department add new language to its rules to close the loophole.

Under the proposed language, changes of guardianship would not be recognized by the department "if a student enters into a legal guardianship but continues to receive medical and financial support from their parents."

Department officials did not immediately comment to say whether the change would be implemented.

The scheme, which was first reported by Pro Publica and The Wall Street Journal, has been traced to clusters of parents in Chicago suburbs. It's unclear how widespread it is being used.

According to the news organizations, some parents were advised to pursue the strategy by a college consulting firm called Destination College, based in Lincolnshire, Ill. The company did not return a request seeking comment.

Mark Sklarow, CEO of the Independent Educational Consultants Association, says both the transfer of guardianship and the college bribery scandal are symptoms of the spiraling cost of college tuition. Still, he said the custody scheme is unethical and unfairly robs students of actual need.

"Guardianship laws are designed for when parents are unable or should not be responsible for a child's well-being," he said. "It isn't something that is meant to be traded away in order to beat the system."

The University of Illinois is still deciding whether to provide its own need-based aid to students who have used the scheme, but officials say they're required to continue channeling Pell Grants and other federal student aid to those students.

In the meantime, the school has added new questions for applicants who have had changes in guardianship, asking who pays their cellphone bills and medical insurance. But the school is wary of making the process overly complex for students who really need help.

Borst said he knows of at least five other Illinois schools that have uncovered the scheme but declined to say which ones. Sklarow, of the consultants association, said he hadn't heard of it outside Illinois.

Follow Collin Binkley on Twitter at https://twitter.com/cbinkley