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What Schools Can Do To Address Suspect Guardianship Orders in Financial Aid Decisions

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August 5, 2019

By Jennifer Smith and Bill Pokorny

A recent Department of Education inquiry regarding transfers of guardianship of college-aged students in Illinois is making news across the country. The Department’s Office of the Inspector General is looking into the practice of wealthy parents transferring guardianship of children to relatives or friends to increase eligibility for student financial aid in college. While current federal law does not directly address this practice, there are some steps that colleges and universities can take to address the issue. 

The practice at issue occurs when a college-bound student’s parent transfers guardianship to a friend or family member to obtain independent status for the student. This allows the student to avoid reporting his or her parent’s income on their federal financial aid application. According to the Education Department’s FSA Handbook, “[s]tudents are independent if they are, or were upon reaching the age of majority, emancipated minors (released from control of their parent or guardian) or in legal guardianship, both as adjudicated by a court of competent jurisdiction in the state of the students’ legal residence at the time of the adjudication.” So long as a state court has entered a valid order of guardianship over the minor before the minor turns 18, the student will be considered independent. In Illinois and other states, guardianship orders can often be obtained with little oversight from the courts so long as the parents, child, and guardian consent. Current federal law does not provide a mechanism for looking past the state court order to inquire whether the guardianship was entered for legitimate reasons other than avoiding reporting a parent’s income for purposes of federal financial aid.

There are, however, at least a few steps that colleges and universities can take in these cases. First, institutions can evaluate their policies and procedures for awarding non-federal aid to ensure that they include a way to address this practice. Second, even for federal aid purposes, institutions can examine whether an “independent” student is in fact receiving significant financial support from his or her parents. The FAFSA generally requires students to report only direct monetary payments or direct payment of bills in a student’s name. However, parents often support students through other means, such as allowing students to live at home, stay on the parents’ health insurance and mobile phone plan, and paying directly for items rather than giving a student cash to do so themselves. Institutions may therefore wish to make additional inquiries in appropriate cases to determine whether and how much “in-kind” support a student is receiving. In appropriate cases, institutions can use “professional judgment” to adjust the student’s cost of attendance or increase the student’s income to account for the additional support.

Colleges and universities that wish to go beyond the FAFSA to address cases where students take advantage of loopholes in federal law should take care to ensure that they are complying with existing regulations and guidance. They should also adopt clear policies and procedures governing such inquiries, including objective criteria for determining which students will be asked to provide additional information, what information will be requested, and what the institution will do with that information once it is obtained. For assistance with a review of your policies and practices regarding guardianship transfers and student aid, contact Bill Pokorny, Jennifer Smith, or another Franczek attorney.

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