Scholarship Displacement

When a student who is receiving need-based financial aid wins a private scholarship, it reduces the student’s demonstrated financial need. The college’s financial aid office must then reduce the student’s need-based financial aid package to compensate, since the student is considered to be an overaward.

College financial aid administrators have flexibility in how they reduce the need-based financial aid package. The college’s outside scholarship policy specifies how the college reduces the student’s need-based financial aid when the student receives a private scholarship.

• About four out of every five colleges will reduce unmet need and the student’s loans and employment first, thereby, replacing loans with the scholarship. This reduces the student’s net price, making the college more affordable.
• About one out of every five colleges will reduce the college’s own grants first, replacing a grant with the scholarship. The student derives no net financial gain from winning the private scholarship and the student’s net price remains unchanged.

The Federal Pell Grant is never reduced, not even if the student is overawarded. Colleges are also not required to reduce campus-based aid, such as the Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Perkins Loan and Federal Work Study (FWS), unless the student is overawarded by $300 or more.

The National Scholarship Providers Association (NSPA), the national professional membership organization for scholarship-granting organizations, conducted a scholarship displacement survey in 2013.

Before a college displaces a student’s private scholarship, there are a few workarounds that should be considered:

• Reduce unmet need. Some colleges are unable to meet the full demonstrated financial need of all students, leaving them with a gap or unmet need. This unmet need might be called a minimum student contribution or summer work expectation. Technically, a student with unmet need is not considered to be overawarded. The college could allow the private scholarship to fill the gap.
• Increase the college’s cost of attendance. For example, the college could include the cost of a computer in the cost of attendance and use the actual costs of the student’s textbooks and supplies as well as transportation, instead of the initial allowances. Increase the cost of attendance to allow the student to keep more of his or her private scholarships. About a third of colleges, especially low-cost public colleges, will eliminate overawards by increasing the cost of attendance.
• Defer the scholarship to a subsequent year. Some scholarship providers will allow their scholars to defer receipt of the scholarship to a subsequent year. This can sometimes eliminate an overaward by spreading the private scholarships more uniformly across the student’s college career. This is especially helpful if the student has won several non-renewable (one-time) scholarships.

Students who have won significant amounts of private scholarship funding should consider each college’s outside scholarship policy when calculating the net price of the college’s financial aid award letter. This can affect the tradeoffs between college affordability and college quality when the student is deciding which offer of admission to accept.