I originally posted the following in the discussion "How much are you saving for your children's education" http://www.getrichslowly.org/forum/viewtopic.php?f=2&t=13172



tazdollars objected:



I thought the original discussion was getting derailed so I moved it here (manually, I'm not a mod.)

I would probably not go for government cheese, nor would I seek treatment at a free clinic just to save a few bucks.

On the other hand, I consider the dollars in question here to be coming from the federal budget, which is for practical purposes unlimited - that is, so large that my personal actions do not have an effect on it. Not that this justifies fraud nor cheating on one's taxes.

Well, this is only my personal opinion, but we're not really talking about criminal fraud here, are we? We're talking about qualifying for loans where the government is going to get their money back, and most likely even make a small profit on it, right? All the while, going towards a child's education?

I can understand it if someone views this as being morally reprehensible. As far as any system gaming goes though, this seems to be one of the more benign.

I can see both sides of it. But the bottom line is that rules are put in place to tell people what they need to do for whatever. I think it is a little extreme to quit one's job just to get school paid for. I assume the rules contemplate people doing this kind of thing. Perhaps the assumption is that if someone really wants the handout and is willing to sacrifice their income for it, well, let them. Seems penny-wise and pound-foolish to me.

I see nothing wrong.

The FAFSA rules are ridiculous. My financial aid shouldnt be determined by parents financial standing. I knew a guy who couldnt get loans or grants others could get because of his parents finances, yet those same parents wouldnt help pay for his school. Instead he had to get up at 3AM and stock shelves 6 days a week to get by.

I understand the spirit of the law, but I disagree with its application.

Yes, reportedly the majority of federal financial aid comes in the form of loans and work study.

You could probably take out the loans, take withdrawals from a 529 in the same year and use that to pay the loans immediately. Doing so could be worthwhile if you also got some non-loan financial aid.

On the other hand institutional aid might lean more towards scholarships. But institutions have their own ways of determining aid distribution, so the ploy in the OP might not even work. It really depends on the specific school in question.

It really depends - to look at it the other way, is it worth working if most or all of the income is going to be taken in the form of Expected Family Contribution?

We'd be talking about not working at a $50k/yr+ job so the question would be whether the scholarship/grant is worth more that $50/yr after taxes etc. I think in most cases it would not be.

Fair enough. Especially since most of the aid would probably be loans. You don't want to let the tail wag the dog - it would be like not working just to avoid paying taxes.

One thing you could do is something with a high probability of failure but a small chance of a huge reward. I.e. start a small business or tech startup. Work on it for a couple years plowing revenues (if any) into the business.

In my situation, it was about the time I was considering retiring anyways. (Though as I said in the original thread, it's really too far off to make any real plans.)

As far as the ethics, would it be more ethical if the parents used the time off to volunteer?

What about a teacher that racks up student loans and then teaches on an indian reservation or inner city school for a couple of years to have the loan forgiven. If the teacher could have worked at a school in a nice area making a lot more money, how is that different?

And how ethical is the current system? What if you have rich, high income, but otherwise deadbeat parents that kick you out with nothing when you are 18. You can't get financial aid just because the government says they ought to be helping you. That doesn't seem to fair.

So why not have the government pay for all college and fund it through elimination of the deduction for having kids?

I don't have any kids so I could not personally take advantage of this loophole or whatever you want to call it. But I am personally more comfortable with someone quitting their job for a few years to make it easier for their kid to get financial aid than I am with making kids suffer because their parents refuse to help when the government has decided they should. And that situation is very common!

Quoting the whole original post I'm responding too since it was under a different topic before that wasmoved:



While I can understand the why you are offended Taz, I think your indignation is a little misplaced. The government cheese program was itself more of a handout for political purposes to support the milk lobby. If you want to talk about gaming the system, that entire program would make a good example of how not to do things!

I'll take your word for it that you grew up poor. But you have succeeded - you are a lawyer as I recall. You got through college and law school somehow. And based on what you have said previously your finances are in great shape.

I grew up soundly middle-class. My dad had a good government job and my mother mostly stayed home. We went on vacation most years (usually camping but sometimes flying to Disneyworld or the beach) and there was always food on the table. We got government cheese a few times but only because someone gave it to us when they got more than they needed.

When it came to going to college my family could only afford minimal support. This was pre-FAFSA but there was an expectation that they contribute far more than they could afford. So I was caught in the middle. My father made too much for me to get any kind of grants or other aid. I had a couple of scholarships based on merit though they were small. But I could not qualify for anything based on need.

The system is flawed. Yet the rules are clearly laid out. I might agree that it is wrong for people to exploit the system if it takes away from those truly needing help. But it doesn't. If Stannius implemented his plan we(all taxpayers) might be subsidizing him but no individual student with needs actually suffers. The entire program just costs a little more. I fail to see this as being any more unethical than taking advantage of a legal tax loophole.

If Stannius's kid is in competition with a more needy student then I would say he should bow out and pay up. But it doesn't work that way.

need-based government grants are not all that much money compared to the average cost of tuition. work study is essentially getting placed in a low paying but generally networking-useful part-time job on campus. and the other major need-based benefit is what, subsidized student loans? right, so you can take those loans out and not pay interest on them until 6 months after you graduate.

the interest and the little bit of grant money is certainly helpful in the use-everything-you-can philosophy, but it seems a little ridiculous to go to such great extents to use a loophole when simply earning the $50k per year and handing it to the kid (and letting those need-based dollars go to those with real need) is a perfectly reasonable alternative.

the need-based dollars, those are not infinite. and that's where i would take issue personally.

I put myself through school while working full time. My parents were in massive debt but they made enough money that I couldn't get any tuition assistance. At the end of my education I tallied it up and it turned out that I paid as much in taxes as my peers were getting in tuition assistance/grants while not working at all. Neither of our parents were in a position to help us. The system is broken, work it to your advantage.

I'm personally not sure I get the point of going two years without any income at all and living off your savings. Wouldn't it cost less to use these savings for your kid's education instead? Not to mention, going back to work isn't always easy, a two-year gap might not help your case, and you wouldn't be able to get employer match without an employer.