How scholarships affect financial aid

Students and families who are eager to reduce their cost of college spend time finding and applying for outside scholarships awarded by private companies. While many think that scholarships are available only for those with significant academic or athletic achievements, there are seemingly endless other ways to qualify for scholarships, from those honoring a specific heritage or identity to those available for students who plan to pursue a career in a certain field.

Because scholarships do not need to be paid back, pursuing them can make loans more manageable because you can borrow less. Some scholarships may need additional applications, so it’s a good idea to make sure you carve out time to research scholarship opportunities and apply. In addition to looking at competitive national scholarships, see if there are any local scholarships available from organizations in your community or awards offered by the trade association in the field you're hoping to enter.

Scholarships do affect financial aid, so it’s important to understand how and when to communicate with your financial aid office about any scholarships you receive. Here's what you need to know.

1. Scholarships are a part of your overall financial aid package

What is the difference between financial aid and a scholarship? Broadly speaking, financial aid is money to help pay for college or career school, and scholarships are a type of financial aid you are not expected to pay back. Scholarships can be based on a wide variety of factors including merit, athletics, academics, identity, or financial need. They can be offered by the government, the institution you’re accepted to, or an independent organization or foundation.

2. You may need to do additional paperwork to find scholarships

Filling out the FAFSA® (Free Application for Federal Student Aid) is one of the first steps in unlocking potential scholarship opportunities. That’s why it can be helpful to complete the FAFSA even if you don’t think your family will qualify for financial aid. Scholarships may also be found independently at the local or state level. Some scholarships are given to students who have certain interests or skills, some may be based on GPA, and others might be based on financial need.

3. You may need to follow or fulfill certain requirements

Scholarships also may have certain stipulations attached to them. For example, a merit scholarship may require a student to maintain a minimum GPA. Athletic scholarships may require that the student play a specific sport throughout their college career. Certain scholarships may only be eligible for first-year students, while others may open eligibility to students at any point in their academic careers.

Once you receive a scholarship, read the fine print to understand any responsibilities on your part. For example, you may need to submit additional materials throughout the year, such as transcripts, to ensure you retain your full scholarship.

4. You may receive less financial aid

Colleges determine your need-based aid by subtracting your Student Aid Index (SAI) from the Cost of Attendance (COA). If your total financial aid package—including outside scholarships and need-based aid—comes to more than $300 above your calculated need, your college must reduce the amount of need-based aid you receive. If you don't tell your school about the scholarship, you may have to pay back the "overaward" since your financial aid package will exceed your need.

This is true even if the scholarship you get is an independent scholarship and applies to every year you’re in college and receiving financial aid. For example, if your high school awards you a $500 scholarship in June, you’ll need to notify the financial aid office if you are receiving financial aid. If you are not receiving financial aid, you do not need to disclose this information.

5. Less financial aid is not necessarily a bad thing

It's up to your school to decide whether to cut back your financial aid package by reducing the amount of federal aid (grants, loans) or institutional scholarships that you receive. If your college doesn't state its award displacement policy on its website or how it treats private scholarships, contact the school's financial aid office.

The best-case scenario is for the school to use the scholarship money to replace loans, since that means you'll ultimately have to borrow less money for school. If your financial aid office decides instead to reduce your grant award, the amount you need to borrow won't be affected.

6. Don't assume the scholarships will automatically renew

Some scholarships are for one year only, and others have certain requirements such as students maintaining a certain grade point average (GPA). Read the fine print on your award so that you know how much money you can expect in subsequent years and what, if anything, you need to do to reapply.

Be sure to update your FAFSA each year to reflect changes in private scholarships. If your scholarship amount goes down but your financial need remains the same, then you should talk to your school about increasing your aid package to make up the difference.

Also, there are scholarships open to enrolled students at every grade level, so remember to keep applying once you get to school and then again each year in college. While it's important to keep in mind how scholarships may affect financial aid, in most cases, scholarships reduce the amount you need to borrow and ultimately pay back to fund your education.

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