Today, Explained - Disown your kid to pay for college

Episode Date: August 6, 2019

This summer’s hottest college admissions scam is parents disowning their children. The Wall Street Journal’s Doug Belkin explains. Learn more about your ad choices. Visit podcastchoices.com/adchoices

The people at Quip would like to help you simplify your morning and evening routines with an electric toothbrush. It's the Quip electric toothbrush, by the way. It starts at just $25, and if you go to getquip.com slash explain right now, you get your first refill pack for free. That's your first refill pack for free at getquip.com slash explained. Today, today explained. It's today explained. You've got your nerves and trepidation about making the leap from high school to university. You've got those summer reading assignments filled with big words you haven't learned yet. You've got that scandal where parents are finding ways to scam their kids into schools on the cheap.

A legal loophole raising new questions about fairness in the college admissions process. Parents reportedly give up legal guardianship of their children during high school so their kids can qualify for financial aid. This technique in particular is new and absolutely deserves everybody's sort of shock and scorn. The admissions director for the University of Illinois went so far as to call this a scam. And also, the heck if I'm giving guardianship to someone else of my child? The scandal is built around something called guardianship. Here's how it works.

Say you're doing well, two-income family, three-car garage, AirPods, everything's going good, but Timothy needs tens of thousands of dollars a year for that fancy liberal arts education because America. You've got the money, but you'd rather spend it on summer in Spain, winter in Tahoe. There's this loophole you can exploit called guardianship. You, the parent of Timothy, a college-age student, can make someone else the guardian of your child. But you don't actually have to, like, throw Timothy away.

You can just give him away on paper. You give up legal guardianship of Timothy to a third party. Maybe a friend, maybe the guy who mows your lawn. When you do this, Timothy no longer has anything to do with your family's two incomes, your three garages, your AirPods. Timothy just has a backpack, a switch, and a bad attitude. All of a sudden, he's eligible for loans, for grants, for all kinds of student aid.

Essentially, it makes a rich kid look poor. It makes a rich kid or a middle-class kid look like a poor kid, yeah. Doug Belkin's been covering this guardianship business from Chicago for The Wall Street Journal. You can save a lot of money. One of the women I spoke to said she was saving about $20,000 a year doing this. So there's a significant savings if you play this game. You can even get free money, it sounds like. Yeah, it's need-based financial aid, which means you don't have to pay it back.

So how exactly does it work? Is it just a bunch of paperwork that you have to fill out? Well, there's one legal step in the middle. There is paperwork, but in order to legally check off the box on the FAFSA that says that your guardianship has been transferred, you have to go to a probate court, and the would-be guardian has to petition the court to take on this responsibility. If the parents and the child are in favor of it in Illinois, the courts are very lenient, the law is very open, and so they say okay. And there wasn't too many questions asked. So what exactly did you guys school guidance counselor was told that this was happening in one of the schools north of the city, and she informed the University of Illinois that it was going on. And that became a problem for them because they realized they were handing out institutional need, which is institutional money, which is need-based and they have a limited supply of to students who were wealthier than they looked on paper. So we got wind of this and checked out the number of kids who had transferred guardianship in one of the counties north of the city and found 38 families who had transferred the guardianship of their children who were 16 or 17 years old and lived in these relatively affluent suburbs. And some of them were enrolled at the University of Illinois. Did you, in your reporting this story,

talk to any parents or students about this guardianship transferring process? Yeah. The example in the story that we wrote about was a woman who has done fairly well. Her and her husband's household income is north of a quarter million dollars a year, but they didn't have much money in the bank and they didn't have much equity in their house, even though it was valued at $1.2 million. They'd put a few kids through college already and said they'd spent more than a half a million dollars to do that. So when it came time to put their daughter through school, they found they didn't have the money and they didn't want to take out loans. So they used this

consultant who showed them how to transfer the guardianship to her business partner. And that helped them get some need-based aid that they no way would have been qualified for based on their income. Their business partner was, what, below some sort of economic threshold? No, it actually doesn't matter. You can transfer the guardianship to somebody who's wealthy.

As long as it's not your biological parent, you can check that you're essentially an independent. So it didn't really matter what their class was. Oh, so in this process of transferring the guardianship to this business partner, the kid kind of became impoverished because the kid was now only being judged on his or her own financial well-being? That's right. So this kid earned $4,200 waitressing tables or whatnot,

and that was her income. I mean, did they think that was fair? I don't know, man. I think she was looking for a good deal. I think she was looking to save money and put aside the ethical issues as best she could to rationalize her decision. That was my read on what was happening. Yeah. The part of the story that's just so striking to me because I have lots of friends who are still paying off college debt on their own or even hearing like Pete Buttigieg up on the debate stage talking about his debt is that these parents in your story just didn't want to take out a loan, that that would be too inconvenient. Yeah, no, I mean, what she said when I asked her

about this was that they thought of this as a business transaction and that they hire an accountant to get them the best deal within the bounds of the law. And they did the same thing for college. It was very sort of practical, objective decision that I think she just didn't either want to deal with or didn't take into account the ethics of it. So in Chicago, there's actually a person you can go to to help you with this. Yeah, Laura Georgiova. She has this business called Destination College, and she's a woman who emigrated when she was 22 from Bulgaria. She had a double major in a Bulgarian college, she said, studying actuarial science and accounting. So she's very good with numbers, and she worked a number of odd jobs and factory jobs and eventually got into a bank and then through financial services until she opened up her own advising company about eight years ago.

I saw a lot of my clients deplete their retirement accounts to pay for college. And this was just the perfect time and the perfect opportunity for me to help people and at the same time create a great business. And she very carefully read the FAFSA form and realized that this was something that you could do to get more financial aid. And so she told some of her clients to do it. And as she points out, there's nothing illegal about what she's done. Do we know what her deal is? I mean, she's an immigrant who decided to scam colleges? Well, you would call it scamming. A lot of people would agree with you. She would say that she was making the most of the rules. She figured out what the rules were and she played by them. The legality of this is not so much in question. The ethics are really what in question. And what's ultimately, I think, going to happen is that the loophole that she

discovered will be closed. But it's going to be hard because in Washington, nothing simple right now, but that's probably where it goes. And what about the schools? Did you speak to any of the administrators at these universities about how they felt about people selling such a service or people sort of taking advantage of this loophole or vulnerability in the system? Yeah, they're livid. From their perspective, this is very clearly a scam. The money that's been earmarked for poor kids who maybe otherwise couldn't go to college is being usurped by these families who found this loophole. So they were very keen to see this story exposed and to get this loophole closed up. And when you exposed this story, did you hear from people in other states?

Do you get a sense now whether this is just happening in Chicago or all over the country? My sense is that there's little pockets of this around the country or individual cases of it. There has been historically, and I don't see any reason why it wouldn't be happening now. If you think parents hiring people to scam their kids into college on the cheap is shocking, just wait until you hear how much college costs. After the break, an attempt to figure out what's behind that scam. This is Today Explained. What's your morning routine like?

For me, I actually wake up and within seconds I turn on the radio to hear the news. But not like the local radio. I actually turn on the radio on my telephone, WNYC 939 New York Public Radio, personal fave, and get that newscast while I'm listening. I start brushing the old teeth and getting myself ready to think about the news for the rest of the day. If you're having trouble with your morning routine, especially that toothbrush part, you might be interested to hear the Quip Electric toothbrush has these timed sonic vibrations that offer an effective clean that's gentle on your sensitive gums in just two minutes, twice a day, just the morning and before you go to bed. The Quip electric toothbrush starts at just $25. You can find it at getquip.com slash explained right now. It starts just $25

and your first refill pack is free. Once again, getquip.com slash explained. Can you just give people who don't have a sense, who haven't been in college in a while, or maybe who don't even live in the United States, how much an average college education costs in this country? What would lead people to try and game the system this way? I don't think it's a mystery. College has become a commodity.

It can cost a couple hundred thousand dollars. That places a really high incentive on figuring out a way to shave costs, to save money. If you're going to buy a car or buy a house, you're going to try to negotiate and bargain. A lot of folks feel like they don't have tremendous stature to do that, so this is one way that they can. There's obviously a lot of ethics and politics here, but from the other side,

I think a lot of Americans are really upset with higher education right now. What is the most expensive college in the United States right now? How much is a year at the most expensive school? I'm not sure about this. I think it's Columbia and it's around $75,000. And this is why Americans are upset, the cost. The cost, the value, and the politics, I think, are the big reasons that are showing up in surveys. The cost of a university education has gone up two or three times faster than the rate of inflation for most of the past three decades. And that's at the same time that middle class wages or wages in general have stagnated. So it's much harder to afford college, which of course has created this debt crisis. And then the value of a degree is flattened.

For a long time, the wage differential between someone who graduated high school and college was growing very quickly. But about 15 years ago, that stopped expanding while the cost of college has continued. So that value is flat. And, you know, only about 60% of people who start college graduate in six years. So there's a lot of people who didn't finish and can't leverage the credential they tried to get to pay off the debt that they probably incurred. And finally, the politics on college campuses lean left, and folks who lean right or are moderates take a front to that in some cases. Apart from like status and prestige and allure, are there tangible things that are making college more expensive right now than it's been historically?

There's a lot of structural issues that have created the rise in cost in colleges. And then there are sort of symptoms of those things. So the way Americans pay for college, by and large, is to borrow money from the Department of Education, from the Treasury, and anybody can do that. They made it very easy to do. So if the money is coming in, then universities are able to raise their prices

to use the money that people are borrowing. Universities have been insulated from competition for a long time. For decades, the number of people applying to college was greater than the year before. That's flattened now. That's beginning to stop, and which is why we're seeing this squeeze, especially at the bottom end of the university sector. And also, of course, because it's just hard to start a college. It's expensive, and so the supply of schools has been somewhat set and the demand has gone up. Those are big issues. And then for public schools, when the recession came, states had big holes in their budgets. And so they cut the amount of money that schools were getting with

the logic that they could raise tuition on the other side and raise money. You know, you can't do that with everything. So schools became a place where the states leaned on the kids to pay more money. So they've really privatized a lot of the public schools now, and that shows up in tuition bills. Has it become more expensive to like administer college or university, private or public? It has. One of the things that people note about colleges is that there's no real checks on spending, or at least traditionally there haven't been. So colleges tend to be decentralized, not run that efficiently. And so things sort of spiral, things get built, and then they don't get taken away. The schools are competing for the best kids. So they want to have really nice amenities. They want to have nice dorms. They want to have, you know, the famous rock climbing walls and Lazy River. That's a real thing. Okay, time out. So when we were doing this interview and Doug said this thing about Lazy Rivers, I couldn't believe that he said this thing about Lazy Rivers.

And then I just continued to talk about it with Doug, but also with our team here. And then it was revealed that our intern Alex Pena had actually gone to a university that had a Lazy River. And it turned out our other intern, Will Reed, didn't even know what a lazy river was. So we just want to clear up this whole lazy river thing, starting with what is a lazy river?

Alex, take it away. So a lazy river, if you've ever been to a water park, maybe you've been in one of these and just didn't know what it was called. It's basically this artificial, slow-moving current of water that you can either raft on or just kind of swim around and jog towards. It literally replicates

a river's current, but much slower and safer, obviously. People use it to work out. People use it to be lazy, as the name implies, and just have a good time. You'll find them at, you know, your local Six Flags,

amusement parks, water parks, wherever you are in the country. They definitely have one. Which brings us to an important point. You did not go to school at an amusement park. Where did you go to school? I just graduated from Boston University. In Boston? Exactly. And in Boston, they have a lazy river? It is an indoor one. So it's not like an outdoor pool. It's really way too cold for that most of the time. I've heard. But the primary use of a lazy river, as the name implies, is for fun and recreation. How much did the lazy river factor into your going to Boston University? Not at all. I didn't even know we had one until I got there. I never even used it, honestly.

All right, we got to get back to Doug. Okay. Do you want me to talk about the rock climbing wall? No, no, no, no, no. Back to the interview. Doug was in the middle of schools are incentivizing with crazy things like rock climbing walls and lazy rivers. And another aspect of that is administration. The number of administrators at universities has grown much, much faster than the number of faculty. And those folks tend to make more money and they tend to proliferate. And part of that is that kids are coming to school with higher expectations and, in some cases cases greater need. Mental health is a good example.

Many more kids who are depressed and anxious are on some sort of medication, so they need looking after in a way that wasn't the case a generation ago. Are schools now better at establishing kids with mental health issues? Because obviously that's not a new thing. Well, the rate that kids are complaining that they have, especially anxiety, ADHD, that's much higher. There's many more kids who are diagnosed with these things than there were a generation ago. So I think to some extent it is a new thing, and the demands on the mental health services at schools has really ramped up in the past five years. You said there were three things upsetting parents about college right now, cost, value, and politics. You explained the cost and value, but what about college politics is getting under parents' skin right now?

A couple of things are notable. There's been research done on the political donations of faculty at different schools and in different disciplines. And in the social sciences and in the humanities, faculty tend to donate to Democrat candidates over Republicans, five to one, ten to one. It's pretty dramatic. The other, I think, issue that gets a lot of headlines is this issue of free speech, which is playing out on a left-right debate. The idea that conservative ideas don't have a home or they're sort of being shunned on college campuses. And we've seen over the past few years, these sort of people shouting down conservative speakers on campuses. I think that sends a signal to a lot of folks in the country that schools aren't open

minded and they're not hospitable to conservative ideas. And that's because there's a baked in the cake liberalism. And if you don't agree with that, if you don't see yourself as that, then oftentimes I think it can create dissension. Does this growing political divide on college campuses make it harder to actually do anything to address the guardianship scandal you reported on or even the cost of college in America? I know there are a couple of progressives running for president on stuff like that. Yeah, there's a lot happening politically, and I only see it growing in intensity. So a couple of years ago, you might recall Trump got passed a law now where they're going to tax the endowments of the wealthiest schools. That comes, I think, directly from the politics of

resentment. People are angry at schools. There's a real sense that they are not fulfilling their mission and the cost has gone up so quickly. So on the Democrat side, what we're seeing are these ideas of putting more money into the system so that they can bring the cost down for the actual users. I would say this has risen to maybe the bottom of the first tier, top of the second tier in terms of the presidential issues. And it'll be interesting to see how it plays out in the general election. But certainly the frustration and the struggles around the cost of college are real and intense, and they're not going anywhere anytime Doug Belkin reports on higher education for The Wall Street Journal. I'm Sean Ramos-Firm. This is Today Explained. Aminat Alsadi, Halima Shah, Bridget McCarthy, and Noam Hassenfeld produce the show.

Irene Noguchi is the executive producer, and Afim Shapiro is the engineer. Alex Pena and Will Reed are summer interns. Jared Paul and Britt Hansen are summer fill-ins, and the mysterious Breakmaster Cylinder is perpetually idle. Today Explained is produced in association with Stitcher, and we are part of the Vox Media Podcast Network. Thanks to the Quip electric toothbrush people for brushing up some support of the show today. They would like to help you get back into your routine if you've fallen out. And we could all use a little help now and then.

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