YOU MAY BE SURPRISED TO LEARN that scholarships that come from community groups, companies, and charities (what colleges call "outside scholarships") could actually reduce your financial aid award.
If your student wins a private scholarship, the college he or she attends cut his or her financial aid package by the amount of the award.
So if a student wins a $4,000 scholarship, the college could cut the aid package by $4,000.
Why is a student penalized for winning a private scholarship?
Federal regulations require that a college consider outside scholarships when calculating a financial aid package (because some of the aid given to students comes from the federal government).
This particular regulation has to do with “over-award situations.”
An "over-award" is when financial aid from all sources is more than the school’s cost of attendance by more than $300.
If this happens, the school is required to reduce the amount of financial aid it has offered you so that it falls under the total cost of attending the school.
Most schools have a policy that allows them to reduce the loan or the work study monies the student has been awarded (which are not free money) and not the grant (aka, free money) awarded
They will do this before they reduce and need-based or merit money awarded.
You will need to ask the schools your student is applying to about their policies to find out how it is handled.
Here’s an example of the University of Washington's policies:
“In compliance with long-standing federal and University guidelines, the University requires students receiving any form of financial aid through the Office of Student Financial Aid to report awards from foundations or trustees or other sources and have their financial aid packages adjusted appropriately.”
And a 2nd example from the University of Puget Sound (a liberal arts college in WA state):
As you can see in the example above, the worst-case scenario (at most colleges) is that the school “replaces” existing need-based grants and scholarships awarded by the college itself with your outside award.
The result: the aid dollars you receive remain the same even though the scholarship dollars have been added.
1) The student had to spend a lot of time (usually) to earn that outside scholarship money when, in fact, they were going to get that money from the college anyways.
2) Outside scholarships are usually awarded for just one year, while scholarships given by colleges themselves are typically awarded for 4 years.
Typically, the amount the student receives from the college stays the same over 4 years, unless family circumstances have changed considerably.
Which means that the college is not committed to replacing the amount provided by the outside scholarship during the following 3 years (so the student could end up with a less aid in years 2-4).
While outside scholarships can be helpful, the single best source of scholarship and grant money are the colleges themselves.
Not by a little, but by a wide margin.
If your student is eligible for a moderate to substantial amount of need based aid, you should be looking for schools that meet 80, 90, or 100 percent of need.
If he or she is not eligible for much or any need-based aid, you should look for schools that are historically generous with merit aid.
Spending time working for better grades, and/or SAT or ACT scores, could be a better use of time than seeking and writing essays for outside scholarships.
That’s because colleges award large amounts of merit aid and need-based aid to students with good GPAs and SAT or ACT scores. These awards are almost always much larger than the average amount of an outside scholarship.
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