Saturday, March 1, 2008

reversing Robin Hood through college subsidies

Subsidies for college students-- in the form of reduced in-state tuitions-- tend to benefit those who are relatively well-off (or will be relatively off). Beyond that, Kim Clark reports on a smaller but more egregious version of such subsidies in U.S. News & World Report...

A little-noticed loophole written into federal college financial aid rules allows the children of wealthy entrepreneurs to collect aid intended for the needy.

In a bill passed last year, Congress decreed that when determining how much each family can afford to contribute to a child's college education, the federal government should not consider the assets of owners of businesses with 100 full-time employees or fewer.

Rep. Marilyn Musgrave of Colorado inserted this exemption, noting at the time that small-business owners should be treated the same as family farmers, who aren't expected to mortgage their property to pay for college....

A change in the law was needed because it can be difficult and expensive for owners of truly small businesses to tap the value of assets such as tools or inventory to pay tuition bills, says James A. Boyle, president of College Parents of America. But, he adds, "100 employees is kind of stretching it."

Accountants and financial planners are now developing strategies to help wealthy entrepreneurs take legal advantage of this new federal definition of "need" by minimizing incomes and storing wealth as business assets....


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