Understanding Scholarship Displacement

In Paying for College on Jun 16, 2016

Every student should always be on the lookout for scholarships. What's not to love about money for college that doesn't need to be paid back?


Private scholarships are a fantastic way of cutting college costs, but students need to be aware of a policy known as scholarship displacement, which can complicate plans to pay for school.


How Does Scholarship Displacement Work?

Each year, students fill out the Free Application for Federal Student Aid (FAFSA). The information on this form determines your Expected Family Contribution (EFC). The difference between a college's total cost of attendance (COA) and EFC is your financial need.


Winning a private scholarship may reduce this financial need, which means your financial aid package could be reduced accordingly. Colleges handle these scenarios differently. Some may reduce some of your loans or work-study with the private scholarship you've received. This is an ideal situation because you'll have fewer loans to pay off after college. Other institutions may reduce a grant or scholarship from the college, which doesn't give you the same financial gain because your debt at graduation isn't decreased.


According to a white paper from the National Scholarship Providers Association, four-fifths of colleges and universities reduce loans and work-study when a student receives a private scholarship and is overawarded, or has more need-based financial aid than actual financial need. Half of the schools contacted the scholarship provider or student to determine how to deal with the situation. That's good news for most students who receive a private scholarship!


What Do I Do If My Private Scholarship is Displaced?

You've worked hard to earn your scholarships, so the last thing you want to do is see the award subtracted from a grant rather than a loan.


Cappex.com Publisher Mark Kantrowitz, a financial aid and college planning author, has a few suggestions for students who find themselves in this situation.

  • Contact your scholarship provider. Private scholarship providers may have had other students experience scholarship displacement and know which strategies have worked in getting colleges to compromise. They may also be able to work with the college themselves on your behalf.
  • Ask the college to allow the outside scholarship to replace unmet need. Explain why you are unable to work during the summer and how borrowing from private student loan programs is not an option. Such an argument may be particularly effective for low-income students.
  • Ask your college for an adjustment to the cost of attendance to reflect actual costs. Keep receipts from textbook purchases to demonstrate that the allowance for textbooks underestimates the actual costs. If you have high dependent care costs, high costs for transportation to/from school or other unusual costs, ask the college to increase your cost of attendance to compensate.
  • Ask the scholarship provider to defer the scholarship to a subsequent year if having too many scholarships during the freshman year is causing displacement.
  • If the scholarship is restricted to tuition and fees, ask the scholarship provider to allow the scholarship to be used for other purposes, if the limitation is leading to displacement.

Should I Bother Applying for Scholarships?
Yes! Applying for scholarships is key to reducing your college costs, and 80 percent of colleges and universities will reduce your loans or work requirements if you receive a private scholarship. Even if you want to attend the 20 percent of schools that may decrease institutional or state aid, you may be able to work with the scholarship provider or college to get the outcome that's most financially beneficial. 

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