viz529
It is not a question of the asset ownership, in this case, or even the source of the money that you would provide to your grandchildren.
It is simply that you provided money to your grandchildren, and the federal financial aid guidelines appear very clear that this is a resource to be counted.
Why would somebody not disclose it? Failure to disclose is fraud, and there are significant penalties. The student can be compelled to return previous financial aid, and become ineligible to receive future financial aid. Other fines and penalties can come into play as well.
If someone does not disclose it, how likely is it that he/she will be caught? That depends. As Dirty Harry once asked, "how lucky do you feel?" Every financial aid office has staff devoted to auditing financial aid applications for compliance. I have seen statistics that indicate up to 25-30% of students at some universities are audited. Get audited, get caught, and the student is the one who pays the most.
That said, I think - and I am no expert here - if you pull the money, gift it to the student's parents, the worst case is that it is treated as a parental asset and assessed up to 5.6%.
Or, if you defer providing it until halfway through the student's junior year, it won't show up at all, unless the child immediately goes on to graduate school.
Hope this helps.
TJ