If you have been awarded a private scholarship, first of all: congratulations! But you may be wondering how or if your financial aid package will be affected. The answer is that coming into new money for college could reduce the financial aid you receive from the colleges that accept you. While schools’ practice of scholarship displacement is very frustrating for students, there are concrete steps that you can take to improve your chances of getting the support that you need.
What is Scholarship Displacement?
First, let’s begin with the basics. If you are awarded a private scholarship, then in accordance with federal law you must report it to your school. The practice of scholarship displacement occurs when a school reduces the amount of need-based financial aid that is available to you based on the value of the private scholarships that you have received. In other words
Scholarship displacement policies are established individually by each school, and vary widely (more on this below). They are also implemented regardless of whether you obtained the scholarship in effort to cover a budget shortfall. In other words, if you received your award letter from the college and are hoping to fill a gap between what you can pay and what the college will charge you, scholarship displacement could actually mean the gap is increased if colleges learn that you received a scholarship from elsewhere and reduce your financial aid.
Why is Scholarship Displacement Practiced?
Schools practice scholarship displacement for two different reasons:
How Does Scholarship Displacement Work?
Every school sets its own policy regarding scholarship displacement. However, about 80 percent of colleges practice scholarship displacement by utilizing the following aid reduction sequence:
Although the vast majority of schools practice scholarship displacement by utilizing the sequence above, a minority (about twenty percent) of schools take a more punitive approach. These schools choose to reduce or rescind their own grant money first, in order to offer more need-based financial aid to other students. As a result, the student who earned the private scholarship receives no financial benefit on a net basis. In addition, some schools do not allow the “minimum student contribution” or “summer work expectation” to be funded by private scholarships, which can result in the student being penalized by scholarship displacement despite the existence of unmet financial need.
How Can I Avoid Scholarship Displacement?
If you are awarded a private scholarship, then it is difficult to completely avoid scholarship displacement, although not impossible. The following strategies can help to minimize the negative impacts of scholarship displacement.
Apply for Certain Types of Financial Aid
Some forms of financial aid and certain assistance programs are protected from scholarship displacement. When applying for financial aid, minimize the risk of scholarship displacement by prioritizing the following forms of student assistance:
Do Your Homework
You can avoid unpleasant surprises regarding scholarship displacement by researching your target schools’ policies in advance. Colleges are required by federal law to publicize their policies on scholarship displacement. As such, you can read about a school’s scholarship displacement policy on the school’s website. If you have any questions at all, do not hesitate to call the school’s financial aid office directly. Especially if you have received a substantial private scholarship, it is important to clearly understand the implications of private scholarships for the rest of your financial aid package.
Beyond just asking questions, there are several concrete actions that you can take to minimize scholarship displacement. Below are key strategies for deriving the maximum benefit from private scholarships:
Is Obtaining a Private Scholarship Worth the Effort?
You may be wondering by this point if trying to obtain a private scholarship is even worth the effort. Despite the disheartening nature of scholarship displacement, the answer is still a resounding yes. Scholarships may not increase the total amount of financial aid that you receive - which of course is extremely unhelpful if you cannot afford to pay for school - but scholarships do reduce or replace the debt financing that you receive. Having less or no student loan debt when you graduate is unquestionably a good thing! In addition, four-year scholarships are especially valuable because they provide assurance that you will receive at least some financial assistance every year. (By comparison, your federal student aid package will change annually depending on your income, tax status, year in school, aggregate borrowing limits, and other factors.) However, if a scholarship is difficult to maintain because it requires a minimum GPA, community service hours, or some other commitment, then you may be better off accepting need-based financial aid instead.
Hats Off to Maryland!
On July 1, 2017, Maryland became the first state to outlaw scholarship displacement in its public universities. The Maryland state legislature passed a law stating that schools may only reduce a student’s financial aid package if the student’s total financial aid exceeds the cost of attendance, or if the scholarship provider gives permission for scholarship displacement to occur.
If you like what Maryland has done, and want to see your state follow suit, then contact your state legislator! Speak up and make yourself heard - you’ve got nothing to lose by doing so.
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