You worked hard, beat out the competition, and locked down scholarships to put toward your college education—good on you! Now it’s time to make sure that money actually goes toward reducing your out-of-pocket college costs.
Whether you’ve just sealed your college choice or are just starting your search, there’s a key question to ask of schools: “What’s your scholarship displacement policy?” That little-known practice could have a huge impact on your financial aid package.
Here's what you need to know about it.
Scholarship displacement is when a college uses your scholarship money from outside sources to reduce its financial aid package, essentially canceling out the financial gain of having won that scholarship. If you score a $1,000 community scholarship, for example, the college then reduces the free money it’s offering by the same amount—instead of letting you cut your student loan borrowing.
That can be a notable loss. In 2017-2018, scholarships covered 17% of the typical family’s college costs, according to Sallie Mae’s “How America Pays for College” study. Most of those awards come from the college, but students also received an average $1,155 in state and local government scholarships and $1,116 from other groups like community organizations and companies.
The good news, according to Edvisors, is that 80% of colleges don't use your outside scholarship money to reduce their aid package. Instead, they use it to first reduce unmet financial need, loans, or work-study.
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For the 1 in 5 colleges that do practice scholarship displacement: What gives?
"The colleges are focused on distributing their limited funds fairly," says Mark Kantrowitz, publisher and vice president of research at SavingForCollege.com. “They figure if you won a private scholarship, you need less money.
"If they can take that private scholarship you won and effectively allocate that money that they're saving by reducing their grants to other students, then they don't have to spend as much money to award their grants."
In other words, their financial aid budget doesn't have to increase as much each year. Scholarship displacement also prevents them from "over-awarding" need-based aid to students; something the federal government strictly regulates.
The motivation isn't purely about money, though. According to Kantrowitz, most schools are also trying to help make college more affordable for their overall student population. Of course, this doesn't make it any less frustrating for students who were hoping to use scholarships to cut their college costs.
Now for a bright spot: There are some workarounds. In fact, Maryland recently banned scholarship displacement. If some colleges in your state still practice it, consider these strategies.
Kantrowitz says your first order of business is to go on each college's website and read up on their outside scholarship policy. If you're torn between two colleges—and one practices scholarship displacement—your decision may suddenly seem a lot easier. Already accepted an offer of admission? That may help inform how aggressively you apply for more outside scholarship money.
Jackie Bright, executive director of the National Scholarship Providers Association, tells Grow that some scholarship providers are leveraging strategies to prevent displacement. They may help you spread out your award across several semesters or years, or even let you defer claiming it until graduation—when you could then use the money to pay off student loans.
It doesn't hurt to ask the college if they'd be willing to reduce your loan amount, instead of your grants. It's a tactic that could work out in your favor. (The worst thing they can say is “no.”)
Some scholarship providers may also be willing to appeal to the college on your behalf. "If [the scholarship] is fully displaced, there's no net financial benefit to the student, and then it has no impact on outcomes, so why would a scholarship provider continue to put up with that?" says Kantrowitz.
Scholarship displacement is a frustrating practice that makes it all the harder to pay for college, but students do have some leverage here. A little research and self-advocacy may be all it takes to sidestep it.