SubscribeFri 11 Apr 2008
I was fascinated by the discussion that took place recently at The Simple Dollar around suggestion that Trent made about “trust.” which was actually in response to one his answers from his mailbag. Trent in his original advice suggested a way to hide money from the financial aid office by “giving” it to an uncle. Trent to his credit admitted that his original suggestion was a not so good, and removed the offending answer (though again to his credit left it in the comments for posterity stake). Commententators fell into three general camps.
- Thought Trent’s advice was great.
- Thought Trent’s advice was unethical even if it were legal. I fell into this camp
- Were to busy fawning over Trent’s talk on Trust and failed to realize that Trent pulled a fast one on them in essentially confusing the topic. While it’s not my place as a blogger with nary a subscriber to criticize The Simple Dollar, one the best and most popular PF blogs there is, I have noticed this is not the first time Trent has engaged in Jedi mind tricks on touchy topics as he did when he responded to an accusation that he made things up.
The topic of financial aid is one that is dotted with many unmarked ethical landmines. I generally think well of people. I think most people are good, decent, ethical people. I also believe that most people are far from perfect, and have ethical lapses - the only exception would probably be my previous roommate, but he was an Eagle Scout, literally and figuratively. I’ve certainly made my fair share of bad calls in life.
So why is Financial Aid such a hot topic for me? In my own experience in College, I witnessed first hand families that gamed the system better than others by employing tactics such as the one mentioned by Trent: Hiding money with different family members, holding onto cash, deferring income ahead of financial aid awards, the list goes on. On the other hand, most of the people who have gamed the system are far from being wealthy. Most of these families could use the extra help - good people who worked hard. The problem I find with gaming the system is that financial aid comes from a limited pot of dollars. A dollar that goes to one family is a dollar that won’t go to another potentially more needy family - a family that might just be little more honest or one that may not know how to best game the system.
While I might be quick to pass judgement on act of potentially sheltering funds, I also realize it’s a slippery slope to be too judgemental. Is it unethical for family to be spendthrift? A spendthrift family will get more money in the financial aid process when compared to frugal family that has squirreled away savings for college. The problem with Financial Aid, and many other things in life the right decision is not necessarily clear cut, and certainly not easy. There are plenty of legal, and some would even perfectly valid techniques to get the most financial aid possible. Many argue that it’s your duty to maximize every single opportunity that exists because of loopholes. Where as many people do disagree if it’s really ethical for instance to shelter money from the auspices of financial aid, most people would unlikely have succh problem exploiting a tax loophole.
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April 11th, 2008 at 3:37 pm
Yeah, seemed pretty clear to me the original intent was to hide the money and get it back later.
But frankly, I don’t care what people do to fund their schooling. At least I can look back and know that I paid for my eduction myself (and I’m still paying for it) and did it all by the books- as I try to do everything with my money. Not to suggest that I’m perfect, I’ve made mistakes in judgement too, but they haven’t been shared publicly on the Internet so I get off a lot easier than Trent is on this one.
April 13th, 2008 at 4:49 am
I agree with your take on Trent’s post - it sounded unethical to me too. And your final point about the difficulty of the decision when it’s a question of who is neediest is a good one.
Btw, you DO have at least one subscriber - me!
April 13th, 2008 at 11:43 am
Unethical? …maybe. I say “maybe” rather that “yes” only because the whole financial aid system is so unfair and ridiculous in the first place. It’s one thing for a multi-millionaire to move money off shore to avoid a few tuition bills. It’s another for a normal, working American to hide their nest egg of $50,000 in order to get some financial aid for their kid. If the system was set up to be effective in the first place, I’d scream and shout at the idea of anybody trying to circumvent it. But the system is a crock, it punishes the most responsible Americans, and it’s the reason tuition is skyrocketing.
What’s (also) unethical is that the tax dollars of these well-intentioned “hiders” go to help millions of people get cheap loans (and even lots of grants) who didn’t bother to save and preferred to spend all their money. But then they can’t benefit from those loans and grants because they saved diligently! Instead they’re forced to deplete their savings and spend it all on tuition that costs. So the savers and the non-savers end up pretty much even. Fair? No. Does that mean people should lie and hide assets? No…but it makes me very un-inclined to judge on those who might.
April 13th, 2008 at 5:02 pm
I think the financial system was set up with the best of intentions. I’m personally grateful for the financial aid I received - there’s no way my parents would’ve been able to send me to the school I did without financial aid. While my parents were extremely frugal, they never made enough money to have significant savings that could put either my or my brother’s tuition. Of course they got a late start since they immigrated to the country in their early 40s. However, there’s no question the financial aid system is deeply flawed and has contributed to rising tuition costs which have squeezed the upper middle class.
Financial Aid is murky area, and people really need to ask themselves if they truly need to game the system as much as they can in order to get money that they might not need. Because there’s someone out there who’s probably more scrupulous like my old roommate.
As for the point about savers subsidizing spenders, it’s not fair from family to family perspective. However, are children to pay for the sins of their parents? I take solace in that in the end financial aid benefits recipients who can hopefully go on to become savers rather then spenders.
April 16th, 2008 at 3:42 pm
“Is it unethical for family to be spendthrift?”
That’s an insightful point. How is hiding money more unethical than spending money, all other things being equal?
“However, are children to pay for the sins of their parents?”
Couldn’t you say the children of savers are currently being punished? First they are denied the enjoyment of spending the money on fun pursuits, then they are denied the equivalent amount of cash because that gets taken for school anyway.
In other words, currently if we have A) child who went on 4 summer vacations to Europe in high school, but has $0 cash, and B) child who didn’t spend all his money and actually saved the equivalent amount, we punish child B by not giving him aid.
April 16th, 2008 at 10:15 pm
While I do think hiding money is more unethical than just spending money because it usually implies a deliberate act to cheat the rules, I also brought it up to illustrate the ethics are not so clear cut. I think the argument can easily be made that there is no difference.
As for the children of savers being punished that assumes that parents spend the money to benefit the children. This may or may not be the case.
I think it’s important to also understand that people receiving financial aid are not getting a free ride. Financial aid almost always anchored by loans. The child of spendthrift is still being saddled with student loans.