Scholarship Displacement – It’s Real

I met a group of parents the other day and got to talking about outside scholarships. The words flowed, and the pitch to apply came easy. I was very encouraging, as usual. However, I could not avoid (my transparent soul) to also speak to the potential negative affect outside scholarships can have on financial aid — specifically, need-based aid awarded by the colleges and universities. Oops, Pandora’s box was open. The questions started to fly with the classic one sticking the hard. Why do we bother encouraging our students (and parents) to invest time in searching and applying for scholarships if only to suffer a financial loss? 

 It’s call scholarship displacement. A practice used by many colleges and universities whereby they swap out the aid awarded by the financial aid office and replace it with the outside scholarship. Is it new, no? It’s been going on for centuries. Yes, there are Federal regulations, professional associations, position papers, and doctrines on ethical practices that all support the practice. Plus, a whole lot of fear placed in the minds of decision-makers and scholarship providers. At the core is the Federal Regulation that mandates the adjustment of Campus-Based Aid, Need-Based aid awarded to a student [34 CFR 668.61 and 34 CFR 668.139. The regulations state in a nutshell that a student campus-based aid (Federal, State, Institution, or External) can not exceed one’s need.

On the surface, it sounds logical. A student/family’s financial need, as determined by the FAFSA (and CSS Profile) is their need. School’s work hard to pull together resources to meet the need. Then those pesky outside scholarships come along, creating trouble, a so-called over-award — That’s when the “displacement” occurs. The external outside scholarship replaces the need-based aid provided as part of the financial aid award (offer). No harm, no foul. 

Hands raised, questions start popping. I thought external scholarships were 99.99% merit awards. How can the school reduce its need-based aid? Mathematics! Mis-directing awards, exercising the art of displacement, really can be a jolt to a student/families financial planning. 

To be fair to the higher education industry, institutions, regularly adjust the Federal Direct Student Loan or Work-Study Programs. Some maintain a cut off level. But, these attempts to play fair (overused terminology) do not address the problem — withholding resources from individuals. Resources critical to help support pay for school.

Today, the cost of college is out of this world. Students and families struggle to pay. Colleges and universities struggle to fill seats. And it seems that these three are not getting better. All the time, while individuals, civic and community-based organizations, philanthropic, employers, and businesses work tirelessly to raise money and make awards to college-bound students. Displacement results in money do not get to the end-user, the student/family.

 It is time for a change — time for an adjustment in the Federal Regulation related to over awards due to external scholarships. Regulations should allow for the use of external scholarships to reduce the cost of college to a student/family, directly or indirectly, by calling for the replacement of the Expected Family Contribution (EFC). Further, trade and professional associations should eliminate the guidance they render, which calls for the notification and delivery of an external scholarship to a school. Plus, the pressure placed on the family to make the call. Let’s allow the outside award(s) to serve its ultimate purpose, helping a student/family supplement their ability to pay for college.

Until an industry-wide change occurs {industry change the rules!!}, here is some food for thought when applying for outside, external scholarships. 

When visiting campuses, ask the questions? What is the impact of an outside scholarship on their Need-Based Aid? Does the school have a tolerance level? If so, how much? Learn the rules of the game at the campus level.

  • If a school has a tolerance, apply. Inform the scholarship provider. Money may be re-routed to the student.
  •  Read the fine print of every scholarship under consideration. Understand where the money will be sent, the student or school.
  •  If you have or can get the ear of outside external scholarship decision-makers, educate them on the impact of sending money to the school. Educate them that in many cases, the money is not getting to the end-user, the student/family. 
  •  If you want to get real political and try to effect change with the Federal Government, speak to your Congressional delegation.

 Be an advocate for your students and those next. 

 For more details on hunting and applying for scholarships, email us for a free Scholarship Guide. Mention Scholarship Guide in the subject.

Our Guide is full of helpful tips for both students and parents. Happy Hunting!