You got a college scholarship. Now make sure it doesn’t reduce your financial aid.

Some states are trying to limit a school’s ability to reduce aid when a student gets a private award.

  • By Cheryl Winokur Munk,
  • The Wall Street Journal
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For many college students, receipt of a private scholarship is reason to rejoice. But the rejoicing may be unexpectedly short-lived.

That is because colleges and universities routinely adjust students’ financial-aid offers based on outside awards, and this sometimes means reducing, or taking away, need-based institutional scholarships or grants that have already been offered. This could happen for a number of reasons, including a desire by the school to redistribute limited institutional funds to others who need it. However, the practice is disheartening to students who have worked hard to obtain these additional funds, only to find out that it nets them little or no financial gain.

“Most families don’t know about the practice; they become aware of it when it happens,” says Robert Ballard, president and CEO of Scholarship America, a Minneapolis-based nonprofit that awards scholarships.

There is movement in at least some states to limit schools’ ability to reduce aid when private awards are received. In 2017, Maryland passed a law that severely restricts scholarship displacement at public universities. In New Jersey, both houses in the Legislature have passed a similar bill, which is awaiting the governor’s signature. And in California, a similar state assembly bill that was introduced in 2021 has been postponed in committee, but it is expected to be reintroduced in 2022.

Earlier this year, the True Cost of College Act was introduced in the U.S. Senate. This bill, among other things, would require schools to disclose their scholarship-displacement policies. Proponents of another bill, one that would limit scholarship displacement on a national level, meanwhile, are pushing for its introduction this year.

“If we can take care of this at the national level, for public and private universities, it would help students in all states,” says Michele Waxman Johnson, chief executive of Bold Thought Partners LLC, a consulting firm in Trappe, Md., and an advocate for eliminating scholarship displacement.

Preventive measures

From a college’s perspective, the issue is complicated because there are federal rules about over-awarding aid, and schools often have to make adjustments to students’ aid packages to stick within the parameters, says Erin Powers, a spokeswoman for the National Association of Student Financial Aid Administrators.

Often, when there’s an over-award, schools will reduce loan and federal work-study offers first. But some schools start by reducing the institutional aid, and that is a practice the bills are intended to stop.

Some scholarship providers have also tried to help by entering agreements that address situations where students receive private aid awards. Scholarship America, for example, has an agreement with more than 270 colleges that the schools won’t reduce their pledges when Scholarship America gives a student additional aid.

Even so, displacement is a continuing issue, and students should be proactive about understanding the policies of colleges where they plan to apply. Information about how outside scholarships are treated can often be found on the financial-aid portion of a school’s website. Students also need to know how they may be able to mitigate displacement if it happens to them, student advocates say.

Students should not try to skirt the issue by not reporting outside scholarships to a college’s financial-aid office, because that likely would violate the school’s policy.

Making your case

“It is absolutely important for students to advocate for themselves,” says Jackie Bright, executive director of the National Scholarship Providers Association. Due to lower enrollment rates caused by continuing effects of the pandemic, institutions might show more flexibility this year, she says.

It can be worth asking a school if it will first reduce or replace the loan or work-study portion of a student’s award before reducing grant money, Mr. Ballard says. Students also can ask if the scholarship funds can be used for another semester or academic year, Mr. Ballard says. Aid offices can also bump up the cost of attendance to increase the scholarship money that can be used without exceeding aid limits, Ms. Waxman Johnson says.

Students should also ask their private scholarship provider to help negotiate on their behalf with the school to preserve their total aid package—all the more so this year, knowing the impact the pandemic and lockdowns have had on many families’ finances, Ms. Bright says.

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