It's not a hard case to make. Bob makes "gift" to Aunt Betty of $250,000 529 account. Aunt Betty never touches the money, and several years later uses it all to pay college expenses of Bob's kids. Neither Bob nor Betty has any history of making such substantial gifts to one another. Bob's FAFSA is selected for verification. Investigator asks Aunt Betty whether there was an "understanding" with Bob about how the money was to be used. What is she going to say? What if the investigator further says that she needs to write down her answer and sign it under penalties of perjury? Are you confident of her answer? Would you be comfortable putting Aunt Betty in that situation?
And if this works, why not do it with all of your assets? Why not transfer all of you life savings and title to your house to Aunt Betty? Because you know you'd probably get caught being that blatant. So, what it comes down to is not whether it is right, but whether you think you can do it without getting caught.
This is different than taking advantage of an intended loophole, e.g., shifting money into types of assets that don't count for purposes of FA. Here you are basically being dishonest by signing a form saying "these are all of my assets," when you have actually parked a substantial amount with Aunt Betty and you think you can get away with it because there is nothing in writing.