Scholarship Displacement
College and Graduate Admissions Insights from admissionsdecisions.com
Welcome back! Today we are discussing a lesser known issue facing families when they go through the financial aid process.
For thousands of families every year, applicants receive their financial aid offers. Those financial aid offers often are a combination of loans, grants, scholarships. In addition to these offers, students may receive outside scholarships from local or national organizations.
When they receive these outside scholarships and report them to the college, students may find their financial aid package modified to reflect the outside scholarship.
This process is known as scholarship displacement, where outside scholarship dollars are used to reduce or modify the financial aid offers colleges provide students.
Part 1: How does scholarship displacement work?
For ease of explanation, lets assume a student is accepted in University X.
University X cost of attendance is $10,000.
Student receives a financial aid package for the entire cost of attendance:
$5,000 in loans
$2,000 in Grants
$3,000 in Work-Study
Student receives an outside scholarship of $1,000
What most families would expect is that receiving the $1,000 outside scholarship would let them use it in any way they want (either replace some aspect of the loans or on top of the $10,000 in aid already provided).
What can actually happens is as follows:
Student financial aid package is modified from the above to the following:
$1,000 outside scholarship
$5,000 in loans
$1,000 in Grants (reduced by $1,000 due to outside scholarship)
$3,000 in work-study
This is because financial aid is based on demonstrated need. Outside scholarships can be used to show that there is less need than originally thought, and the financial aid package is modified to reflect that.
Part 2: Is all financial aid affected by this?
For many parents who learn about scholarship displacement, the natural question is to ask if scholarships even matter. The answer is, it depends. Not every university has the same outside scholarship policy. And not all financial aid is subject to this offset. For example, the Federal Pell Grant is never reduced due to a student being overawarded, the official term for someone who receives scholarship in excess of the demonstrated need.
That being said, the most important thing you can do is ask a college what their outside scholarship policy is. Each university sets their own policy, and they have complete discretion where to apply your outside scholarship. As a general rule of thumb:
Most colleges will tend to replace loans and work-study first with outside scholarships, which would reduce the net cost to the student. This is the better option for scholarship replacement.
Some colleges will reduce their own grants and scholarships first. In that situation, your scholarship will only replace their grants, which does not change the net cost to you. This is not a good option.
Part 3: How do you avoid scholarship replacement?
There are a couple of ways to avoid scholarship replacement from happening to you:
Reduce unmet need
Increase the cost of attendance
Defer the scholarship
Be proactive with outside scholarship policies
Reduce unmet need
In our need blind admissions post, we discussed colleges that are need blind, but do not promise to meet all demonstrated need.
In these situations where a college is not able to meet all demonstrated need, outside scholarships can be used to meet this need gap. For example:
Cost of Attendance: $10,000
Demonstrated Need: $8,000
School’s Financial Aid Offer: $7,000
Outside Scholarship: $1,000
In this scenario, the schools’ financial aid doesn’t meet all of the demonstrated need. The outside scholarship can be used to meet the gap between the need and the offer without any consequence.
Increase the cost of attendance
Some colleges will work with a student to “increase” the cost of attendance to avoid an overaward scenario.
Cost of attendance: $10,000
Demonstrated Need: $10,000
Financial Aid Award: $10,000
Outside Scholarship: $1,500
For example, they may include the cost of a laptop in the cost of attendance to create enough additional cost where the outside scholarship can be applied to meet that expense. Public colleges are more likely to do this, but you can inquire with any college to see if they will allow the outside scholarship to be used in this way.
Estimated Laptop Cost: $1,500
New Cost of Attendance: $11,500
Defer the scholarship
In some instances, a scholarship can be deferred to another year. The ability to defer will depend heavily on the scholarship itself, but if you have the option to do so, it may be more beneficial to defer it.
This is helpful in two situations:
The family’s financial situation is likely to change to create a different financial aid offer
A student has multiple outside scholarships and would rather spread them out throughout college and avoid overaward in a given academic year.
Be proactive with outside scholarship policies
The best way to avoid scholarship displacement is to research the scholarship policies of colleges as early as possible. Understand which colleges will use outside scholarships in the ways that are most beneficial to you.
If a school is not going to work with you, be aware of that ahead of time so you know how heavily to invest in pursuing outside scholarships and use it to help prioritize which schools are the right fit for you.
Enjoyed this post? Share it with parents or educators who may be unaware of these policies.