What can I do to prevent my college financial aid package from being reduced because I won a private scholarship?

Question:

After my college received the check for a private scholarship I won, they reduced the college aid they originally offered me. Now, I feel as if there was no benefit for my hard work in winning the private scholarship. They "stole" my scholarship. What can I do to prevent my college financial aid package from being reduced because I won a private scholarship?

Answer:

Award displacement occurs when the receipt of one form of financial aid, such as a private scholarship, causes a reduction in other forms of financial aid.

When a student is receiving need-based financial aid, receipt of a private scholarship may reduce the student’s demonstrated financial need. The college financial aid office responds by reducing the student’s need-based financial aid package by a similar amount.

Colleges do have some flexibility in how they reduce the financial aid package. If the college does not meet the student’s full demonstrated financial need, they could use the private scholarship to fill the gap (unmet need). They could reduce student loans and student employment before modifying the college’s institutional grant or scholarship funds. These solutions reduce the college’s net price, yielding a financial benefit to the student. About four-fifths of colleges have such a favorable outside scholarship policy and about one-fifth do not.

Students who are affected by displacement should ask the scholarship provider for help. Sometimes the scholarship providers can influence the college’s decision, especially if the scholarship provider is giving millions of dollars to the school. The scholarship provider may ask you to sign a Family Educational Rights and Privacy Act (FERPA) waiver so that they can advocate on the student’s behalf with the school.

Here are a few ideas that may help students keep more of their private scholarships include:

  • Enroll at a college with a more favorable outside scholarship policy.
  • Ask the college financial aid office to use the private scholarship to eliminate the summer work expectation, especially if the student will be taking summer classes or has exceptional financial need. For example, the student could ask the college to let him or her use the scholarship to pay for summer classes.
  • Ask the college financial aid office to use the scholarship to replace student loans and student employment, instead of college-awarded grants or scholarships.
  • Ask the college financial aid office to use professional judgment to increase the cost of attendance to cover real expenses, such as student health insurance, a computer, child care costs and above-average textbook costs.
  • Ask the scholarship provider to defer the scholarship to a subsequent year when it is less likely to be displaced, perhaps even until the student enrolls in graduate school.
  • If the displacement is occurring because of restrictions on the use of the scholarship, such as a textbook-only or tuition-only scholarship, ask the scholarship provider to relax those restrictions.
  • Ask the scholarship provider to contribute the funds to a parent-owned 529 college savings plan instead of awarding it as a scholarship. This will significant reduce the impact on the student’s financial aid award.
  • Ask the scholarship provider to wait until after the student graduates to give the money in the form of loan repayment assistance. This strategy may increase the student’s potential tax liability.
  • Ask the scholarship provider to give the money to the student’s parent, without requiring the parent to spend it on college costs. Cash support to the parent is not reported as untaxed income on the FAFSA (Free Application for Federal Student Aid) and, thus, would not impact the student’s eligibility for financial aid.