Will Outside Scholarships Reduce the Financial Aid from My College?

Q. Will claiming outside grants or scholarships hurt our family's financial aid chances?

A. Like so much with college financial aid, it depends. If the total amount you're awarded in outside scholarships, college scholarships, and federal grants and loans exceeds the total cost of attendance at your college, the government requires that your aid be reduced.

But what happens if the total amount of your award is less than your total need? Some colleges may still choose to reduce the need-based aid they offer you, since, on paper at least, a scholarship reduces your need.

The decision depends on several factors, including the size of the awards and your level of financial need, says David Sheridan, a financial aid director and member of the National Association of Financial Aid Administrators, who participated in Money's recent FAFSA chat on Twitter. Small scholarships will have little, if any, effect, he says.

And generally, the offset or reduction isn't dollar-for-dollar, so you're better off applying for scholarships and maximizing all your options. Colleges decide whether they'll reduce loans or grant aid, and since their policies on this vary, it's best to ask the colleges you've applied to if and how they will reduce your aid for outside scholarships.

Finally, a word to the wise: Don't be tempted to fib about the amount of outside scholarships you've won. If you don't report your awards to your college's financial aid office, you could be on the hook to pay back whatever amount exceeded your need, according to the College Board.