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Reports: Wealthy parents transfer guardianship of kids to get college financial aid

And it's legal.

Wealthy families in Illinois are giving up custody of their own children to win need-based scholarships and other financial aid for college, according to separate reporting by ProPublica and The Wall Street Journal. And, it's legal.

According to ProPublica, the parents will give up guardianship of their children during their junior or senior years of high school. Custody of the children will be given to a relative or friend. This allows the child to declare themselves financially independent and, therefore, qualify for need-based financial aid. 

ProPublica said it found almost four dozen guardianships like this were filed in the past 18 months in the suburban Chicago area. Other petitions have also been filed in the area, and it could be happening nationwide.

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The University of Illinois has reportedly found 15 applicants who took part in the practice, including three who just finished their freshman year.

Andy Borst, director of undergraduate admissions at the University of Illinois at Urbana-Champaign, reportedly said the university told the three freshmen their financial aid would be reduced.

"We didn’t hear any complaint, and that is also a big red flag,” Borst said.

In separate reporting, the Wall Street Journal said it found 38 cases in the same region in which a judge granted transfer of guardianship. Most of those families lived in $500,000 homes while some had homes valued at over $1 million.

One woman who WSJ spoke to transferred her daughter's guardianship to a business partner. WSJ reports the family's household income is $250,000, they had no equity in their estimated $1.2 million home, and they already spent $600,000 on college for their other kids.

The student, who reportedly attends a private West Coast college with a $65,000 annual tuition, was able to obtain a $27,000 merit-based scholarship and $20,000 in need-based financial aid. That includes a federal Pell grant that she will not have to pay back. The remaining $18,000 will be covered by her grandparents.

Attorney Mari Berlin, who represented 25 of these families, reportedly told WSJ that the guardianship law gives judges a lot of latitude.

"The standard is, best interest of the child, and I think it’s hard to argue that this is not in the student’s best interest," Berlin reportedly said.

The Department of Education is reportedly looking into the practice.

This revelation comes months after the so-called "Varsity Blues" college admission scandal in which wealthy parents allegedly paid bribes to get their children into top colleges. Unlike that case, this practice is legal.