Why “Wealthy” Families Are Transferring Guardianship to Pay for College
Last year, Federal authorities were made aware that parents from "wealthy" families were transferring guardianship of their teens to lower income individuals to gain access to college funds meant for lower income students. According to USA Today, "The University of Illinois started investigating after high school counselors from 'fairly wealthy neighborhoods' had called to inquire about low-income orientation programs they were unfamiliar with."
So, that's the info we have about the scammers - families from fairly wealthy neighborhoods. So, probably the high end of middle class folks. Ok, so first off, any way you look at it, it's a scam and it's not fair to try to cheat the system. Now, with that said, unless you have recently sent a child through college or have a savings fund set up for your child, you probably have no clue what the cost of sending a teen to college on your own entails. So, let's take a look...
I plugged in some numbers at savingforcollege.com, a calculator I highly recommend to get you started with college savings info. I put in a combined family income of $100,000. This is the model of both parents making a total of $50,000 each per year which may or may not be "fairly wealthy." If you have a child who is starting Kindergarten this year and you started saving for college today, you'll need to save $162,818 to send them through a four-year state institution.
But, what will you qualify for in grants and scholarships if you make a combined $100,000 per year? Well, Forbes sums it up like this: College aid formulas expect parents to contribute up to 47% of their after-tax income to college costs each year. So, in a perfect world, your student would get $47,326 in help for school. But, hold the phone - this doesn't take into account savings (including college savings!), or investments (including your retirement investments). So, if you have thought ahead and are saving for their college or retirement - well, sorry, your child doesn't qualify for squat.
Okay, so let's look to see what you'll need to save for your child. And that total is $115,492. You have 13 years so save that so, some quick math and you'll need to save $740 per month. Can you afford to take $185 a week out of your paycheck? Apparently a couple who makes $100,000 a year combined who is also paying for their home, vehicles, insurance, school, food, and all the other things we need to live should be.
But, what if you, as a parent, don't plan on paying for college? What if it's up to your child to take out loans and foot the bill? Well, it doesn't matter who is paying - the FAFSA goes by parents' income and assets. So, essentially your student will be saddled with $115K in debt right out of the gate. And, they'll probably end up working a "get your foot in the door" job long before they make any real money to start paying off the debt.
Each scenario is different depending on how many kids you have, where they plan on going to school, and what your financial situation is. As a former college admissions counselor, though, I can tell you that most families pay something out of pocket. So, start now. There are several 529 plans out there, as well as private investment firms like Stash. I have a custodial account set up for my daughter's college savings.
So, again, any way you slice it, cheating the system is wrong. And these "fairly wealthy" people might have been gazillionaires who just want to spend their buckets of money on a 48 bedroom home and 15 luxury cars but I'm NOT and as a working mom who is a lot closer to the above scenario, I'm stressed out day and night about sending my daughter to school 12 years from now. I get poked fun at all the time because I'm "frugal" or that I get really bent out of shape when I feel like my money has been mishandled. I drive a 2007 Ford Edge so that I can put that would-be car payment into her college fund. I have done the math and I don't want my daughter to be saddled with that kind of debt when she's starting out in this world. I also want her to have all the opportunities in life that my parents afforded me.
Though what these parents are doing isn't illegal, it's kind of crappy - especially for those kids who suffer because of a lack of funds or those of us who play by the rules and drive the 2007 Ford Edge while paying into taxes so those parents don't have to go without. But it has broken the discussion about 'gap' parents and students who pay their own way wide open. It's time that we really take a look at the cost of higher education or at least educate ourselves on what the future holds for our kids so we can help them the best we can.