Surprise! Some Scholarships Can Actually Cost You Financial Aid

You did it! You’ve completed the FAFSA. You've qualified for a federal Pell grant and work study. You've got aid from your state, a grant from the school, student loans, and a private, outside scholarship. Taken together, they will cover almost all of your college costs. It might seem like the puzzle of paying for the first year of college is complete.

Unfortunately, it's not.

Depending on the college you choose and its private, outside scholarship policy, when you tell the school about the scholarships you've received—which you must do—it might take away the state grant and its own grant.

Suddenly, despite all of your hard work to gain scholarships, you no longer have the puzzle solved. You still have a gap in the money you need to cover your college costs. This is what's called "scholarship award displacement"—when one form of financial aid (in this case, a private, outside scholarship) results in a reduction of other forms of financial aid.

When you are awarded financial aid that exceeds your financial need as determined by the FAFSA and, in some cases, by another method used by the school, the school must reduce some aid to be sure you are not “over-awarded.” Becoming over-awarded can happen when you have a private, outside scholarship in addition to the other financial aid sources mentioned. This can also happen when you have an unsubsidized student loan that you use to pay for your expected family contribution (EFC) and the total amount of your need-based and non-need-based aid exceeds the school's cost of attendance.

What you can do

If your financial aid package must be reduced, the kind of reduction you should prefer (and request) is for the school to take away the loans, not its grant. Replacing the student loans with your private scholarship makes college more affordable, letting you graduate with less debt.

Understanding how various types of student financial aid, such as federal and state grants, student loans, part-time employment, and scholarships, affect one another is important so you know exactly how much money you will have to pay for college and living costs.

Make sure the school is a good financial fit for you by taking these steps:

• Research the college’s position on private, outside scholarships. Sometimes schools have policies to distribute their limited funding only to students who do not have private, outside scholarships. This means they will reduce their grants or scholarships before they reduce student loans.

• Find out if the school requires a “minimum student contribution” or “summer work expectation” that cannot be covered by a private, outside scholarship. If you have significant financial need, you should talk to the school’s financial aid office and request that this requirement be removed. If that’s not possible and you can't afford the contribution, you may want to consider attending another college with a more generous private, outside scholarship policy.

• Understand any restrictions placed on your private, outside scholarship by talking with the scholarship provider to find out what the scholarship can cover. “Last dollar” scholarships are meant to cover any remaining financial need after all other sources of financial aid are applied to a student’s bill. Other private, outside scholarships can be applied toward the entire cost of attendance; still others are restricted to tuition and fees only. If the scholarship is restricted, you can ask the provider to “bank” the scholarship for a future year when your financial need may increase, apply the funds toward other school-related expenses, or apply the scholarship toward your student loans after you graduate.

The professionals at your private, outside scholarship provider and the financial aid administrators at your school want to help you complete the puzzle of paying for college. Be sure to ask for their help to navigate this complex process so that you can get the most out of your hard-won financial aid resources.

Amy Weinstein is the executive director of the National Scholarship Providers Association (NSPA). NSPA members help students get to and through college with support services and scholarships. She most recently wrote for Money on "5 Best Ways to Snag a College Scholarship."