Private scholarships awarded by companies and philanthropic organizations to low-income students are intended to help close the gap between what they have and what they need to cover the cost of higher education.
But many colleges factor scholarships into the overall equation and reduce the amount of financial aid a student is eligible for – dollar for dollar – leaving the student no better off.
While the scholarship money itself is not reduced, colleges will reduce the amount of need-based financial aid the student receives, said Mark Kantrowitz, a college funding expert based in Chicago.
“Colleges have the discretion of reducing loans or grants,” he said. “About 80 percent of them reduce loans first. But about 20 percent of them reduce grants first. If they reduce loans, your net price goes down, which is a financial benefit. However, if they reduce grants, your net price doesn’t change and there is no net financial benefit from receiving scholarships.”
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The practice is known as “award displacement.” It occurs when one form of financial aid, such as a private scholarship, leads to a reduction of other forms of financial aid.
The University of Pittsburgh is one school that has taken a stance against award displacement.
“We believe that earned private scholarships intended to reduce a student’s financial need should be used for that purpose,” said Randy McCready, director of financial aid. “The only time the University of Pittsburgh practices scholarship displacement is when the total amount of awards combined with institutional scholarship or grants exceeds cost of attendance.”
Financial aid is calculated based on information that students and parents provide on the Free Application for Federal Student Aid or FAFSA.
The financial aid staff uses that information to decide the student’s cost of attendance at that school. Then the staff members consider the family’s expected contribution. They subtract the family’s expected contribution from the student’s cost of attendance to determine the amount of the student’s financial need, and therefore how much need-based aid the student can receive.
For instance, if the cost of attending the college is $6,000 and the family’s expected contribution is $2,000, the student will not be eligible for more than $4,000 in need-based aid. Students must report all private scholarships on their FAFSA. If the scholarship is awarded after the FAFSA is filed, the need-based aid is recalculated to determine how much aid the student should receive.
Duquesne University, also in Pittsburgh, does practice a form of award displacement, according to Richard Esposito, director of financial aid, enrollment management group.
“Duquesne University does not reduce the amount of university-based scholarship funds if a student receives outside scholarship funds,” he said. “but may do an adjustment to any need-based aid – such as government loans, work study and university need-based grants – if their need is reduced.”
Students hurt the most by this practice tend to be low-income students who qualify for need-based federal, state and institutional financial aid.
Kantrowitz explained that Pell Grant awards from the federal government, which are allocated to students based on need, are one form of financial aid that colleges cannot reduce in response to private scholarships.
The maximum Pell Grant for the 2015-16 school year is $5,775. The amount students get depends on financial need, the costs to attend to school, status as a full-time or part-time student, and the student’s plans to attend school for full academic year or less, according to the U.S. Department of Education.
Many colleges and universities publish their policies on scholarship displacement on their websites. Students who plan to attend a particular college should find out what the school’s policy is so they will know how to handle it, Kantrowitz said.
“Students and parents also can call the scholarship provider if they believe the scholarship funds have been displaced,” he said. “The scholarship provider may have more leverage.”
The goal of scholarships, he noted, is to help with the financial pressure of paying for college.
“If the college is just taking the money with no benefit to the student, that’s something they would want to know about. The scholarship provider could put pressure on the school to stop the practice, especially if several students are affected.”