How college financial aid scams impact low-income students: 'There's only so much to go around'

The University of Illinois
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Just months after the so-called "Varsity Blues" scandal, in which it was revealed that wealthy parents paid roughly $25 million to help their children gain admission to elite colleges and universities like Yale and Stanford, a new way wealthy families are manipulating the college admission process has come to light. 

A report by ProPublica highlights a practice by which Illinois  parents exploit a legal loophole, ceding guardianship of their children during high school, often to a friend or family member. Their children then declare themselves financially independent, allowing them to qualify for need-based state, federal and university financial aid for which they would not otherwise be eligible.

ProPublica identified nearly four dozen families in one Chicago-area county that filed this type of guardianship in the past 18 months, as well as petitions in several other nearby counties. Students qualified for federal Pell Grants and state Pell Grants, known in Illinois as the Monetary Award Program (MAP). Together, these grants are worth about $11,000 per year.

Andy Borst, director of undergraduate admission at the University of Illinois at Urbana-Champaign says that rising college costs may be motivating bad actors. "I think that they're feeling the pressure of the costs of a college education and that pressure is leading to unethical decisions," he tells CNBC Make It.

College costs have increased steadily over the past several decades, rising fastest at four-year public universities. According to the College Board's 2018 Trends in College Pricing Report, from 1988 to 2018, sticker prices doubled private nonprofit four-year schools but tripled for in-state students at four-year public universities. During the 2018-2019 school year, published in‐state tuition and fees at public four‐year schools averaged $10,230.

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The University of Illinois identified 14 students (three who've completed freshman year and 11 who will enroll in the fall) who used this drastic method to secure need-based aid after high school counselors started wondering why wealthy students were getting invited to special programming for low-income students. "They started asking questions, and that tipped us off to look deeper into our information, because this isn't something that we would have necessarily thought to look for otherwise," says Borst.

He stresses that while families may think they've identified a harmless hack, the practice has a direct impact on low-income students. "Financial aid resources are not unlimited," he says. "Whether we're talking about the federal government, the state government, or even institutional aid — there's only so much to go around."

Because federal and state Pell Grants are distributed on a first-come first-served basis, many low-income students don't receive the funds they qualify for. According to ProPublica, last year about 82,000 qualifying Illinois students did not get their $5,000 MAP grant for this reason.

"When a family who has the ability to pay, but maybe not the willingness to pay, goes down this route they are taking money away from low- and middle-income families," says Borst.

Lost faith in a broken system

In addition to families, Borst says that private college counselors are also to blame. "There are some reputable counselors," he says, but warns families not to "follow the direction of someone who appears to be an expert, when in fact they are helping them manipulate the system."

Unethical college counseling was central to the Varsity Blues scandal. The case brought forth by the Justice Department alleges that William Rick Singer, founder of Edge College & Career Network, a for-profit college counseling organization, helped students cheat on SAT and ACT exams, bribed athletic coaches and administrators to pretend that students were athletic recruits and used a charity he had established to funnel the funds.

At the time, Richard V. Reeves, senior fellow of Economic Studies and co-director of the Center on Children and Families at the Brookings Institution called the Varsity Blues scandal "just the tip of the iceberg" — an observation that's uniquely prescient now. 

"The FBI said this scheme amounts to a 'rigged system,' but the truth is that the whole system of college admissions is rigged in favor of the wealthy," he told CNBC Make It. "Legacy preferences hugely favor the wealthy, as do many preferences for certain athletic skills, musical abilities, and so on. The children of big donors seem to get an almost automatic admission. The difference between this illegal scheme and the legal ways in which money buys access is one of degree, not of kind."

And as a result, many Americans today have lost faith in the college admissions process. According to a USA TODAY/Suffolk University Poll of 1,000 registered voters in March, fewer than one in five Americans believe the college admissions process is "generally fair." About 67% of respondents said that the current college application and admissions process "favors the rich and powerful."

 And researchers have repeatedly found that wealthy students enjoy significant advantages in the college admissions process. Wealthy students are more likely to attend high schools with a significant number of AP classes, have access to tutors, have taken standardized test preparation classes and have taken standardized tests like the SAT more than once. These students are also more likely to participate in costly extra-curricular activities that can give them an edge in the admissions process, like playing club sports or an orchestral instrument.

Even the ability to pay the full tuition price — instead of relying on scholarship funds or financial aid — gives wealthy students an advantage in the admissions process at schools that are not need-blind.

ProPublica is currently expanding their investigation but for now, it is hard to gauge how common the practice of giving up guardianship for financial gain is.

"We don't have a sense for how rampant this is. I mean, this may be isolated to Lake County, Illinois, or it could be something happening throughout the state," says Borst. "We've really just started to have the conversation."

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