Financial Aid Cheating: 6 Reasons to Stay Honest

Last Updated Apr 12, 2011 5:58 PM EDT

After I finished a college talk at a high school last week in the Philadelphia area, a dad, who had hung back until the crowd dispersed, asked me whether it would be okay to hide his assets before he applied for college financial aid.

The father was considering temporarily transferring what he called "a lot of money" to his own brother in the hopes of being eligible for financial aid. He wanted the green light from me, but he didn't get it.

I told him that cheating on the FAFSA is illegal and that he could get into a lot of trouble if he was caught. I didn't know what the specific penalties were because no one had ever asked me if cheating on a financial aid form was okay.

I did find the answers from Mark Kantrowitz, who is the publisher of FinAid and FastWeb. Here then are six reasons why the Philadelphia dad or anyone else should not become financial aid cheats:

1. Providing false information on the FAFSA is a federal crime.

You can be fined up to $20,000 and/or face up to five years in prison. Cheaters face the penalty whether or not their deception resulted in receiving federal student aid or not.

2. If caught, you can't keep the money.

If you are discovered cheating, you will have to return all the financial aid.

3. Your child might get kicked out of school.

Some colleges with honor codes will expel students who submit falsified financial aid applications.

4. Cashing out assets creates a paper trail.

If parent hope to hide money in a mattress they have to first sell investments, which triggers paperwork and the reporting of any capital gains to the IRS.

5. It's pointless to hide assets.

Financial aid formulas are heavily dependent upon a family's income. So even if you hide assets in a safe deposit box or with relatives, your income could still keep you from qualifying for aid. As a practical matter only about 4% of families have enough assets to reduce their financial aid chances.

Ironically, this was the case with the Pennsylvania dad. After he kept telling me that he had considerable money to hide, I asked how much it was and he told me $100,000. The federal methodology would treat that six-figure amount as peanuts and it would hardly impact his child's chances for financial aid at all.

Here is a post that I wrote about how assets impact financial aid:

Why Saving for College Won't Hurt Financial Aid Chances

6. You probably won't get away with it.

College financial aid offices are good at spotting hanky panky on aid applications and they are obligated to alert the Inspector General at the US Department of Education to potential fraud. If assets are inconsistent with income, schools may require several years worth of tax returns and account statements.

Bottom Line:

Isn't it obvious? Play by the rules or else affording college will be the least of your troubles.

Lynn O'Shaughnessy is author of The College Solution, an Amazon bestseller, and she also writes her own college blog at The College Solution.
Financial aid cheat image by abardwell. CC 2.0.

More on CBS MoneyWatch:

The Nation's 15 Richest and Stingiest Colleges

What's Wrong With America's Dream Colleges

Playing the Financial Aid Lottery