Navigating through college financial aid can be complex, but understanding your school's scholarship policies is crucial for making the most out of your hard-earned scholarships. Scholarship displacement is an unfavorable policy you need to be aware of as it can significantly affect how much financial aid you receive. Learn how to determine if a school has a favorable or unfavorable outside scholarship policy.
What is an Outside Scholarship?
An outside scholarship is any scholarship awarded by an entity outside of your college, state, or school. These can come from private companies, non-profit organizations, community foundations, and more. For instance, if you win a scholarship from Edvisors, those funds are considered outside scholarship money.
If you’ve taken the time to apply, win, or earn an outside scholarship, you want to make sure you benefit from it as much as possible.
Understanding the Financial Aid Award Process
Schools evaluate the information you provided in your financial aid applications, such as the FAFSA, to determine your financial aid package. If you've completed the FAFSA (a strongly recommended step), your school receives the provided information along with your Student Aid Index (SAI). Utilizing the SAI and the cost of attendance, the school determines your eligibility for several types of financial aid. This includes need-based aid (grants and scholarships), work-study programs (earned aid), and non-need-based aid (student loans), ensuring the total aid awarded does not exceed your cost of attendance. Unless you have informed your school, your school is likely not aware of your outside scholarships until you inform them, or they are paid through the scholarship provider.
Adding Outside Scholarships to Your Financial Aid Package
Once your school is award of an outside scholarship, they will add it to your financial aid package. If your outside scholarships make your financial aid exceed your cost of attendance, your school will need to make some adjustments to your award.
The ideal way for your school to make an adjustment would be for them to reduce the amount you need to borrow in student loans. This will allow you to keep the “free money” awarded, those grants and scholarships, and decrease your future debt. But, while it is the ideal way to manage outside scholarships, your school may have a different policy which may not be favorable.
Scholarship Displacement Policies
Scholarship displacement occurs when a school first reduces its own school grants or scholarships when an outside scholarship is applied, rather than reducing your student loans first. Scholarship displacement policies can diminish the benefits of your outside scholarship, as it doesn't decrease the amount you need to borrow.
This method doesn’t benefit you much at all. You haven’t reduced the amount you need to pay out of pocket, and you must repay your student loan and any accruing interest.
What is Not a Scholarship Displacement Policy
It all gets a bit tricky because it comes down to the cost of attendance.
There is a chance your school will inform you that they need to reduce your school awarded grants or scholarships to accommodate a scholarship. However, if your school is informing you of this reduction and they already eliminated your student loans and work-study, that means your outside scholarship is so large they need to make necessary adjustments to ensure your financial aid award is only up to your cost of attendance. This isn’t a scholarship displacement policy; these are necessary adjustments.
The best way to think about it, scholarship displacement occurs when your school awarded grants and scholarships are reduced before your student loans are reduced.
Identifying Schools with Unfavorable Policies
While some states have laws regarding scholarship displacement, California, Maryland, Minnesota, New Jersey, Pennsylvania, and Washington, many do not. It's essential to research a school's policy if you're considering institutions outside these states. If the school's website does not provide clear information, don't hesitate to contact the financial aid office directly.
The Importance of Research
Earning scholarships requires significant effort; therefore, ensuring they're applied in a way that maximizes their value is vital. Before deciding on a school, take the time to understand its scholarship policies, especially regarding outside scholarships. This understanding will help you make an informed decision and ensure you benefit as much as possible from your scholarships.
Remember, the financial choices you make now will impact your financial health in the future. Make sure to leverage every opportunity to reduce your educational costs and minimize debt. Taking the time to understand and inquire about scholarship policies is a step in the right direction towards a more affordable college education.