How Scholarships Affect Financial Aid

How Scholarships Affect Financial Aid

Students and families 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 seemingly endless other ways to win scholarships, from those honoring a specific heritage or identity to those available for students who plan to pursue a career in a specific field.

Apply for any scholarships for which you might qualify. 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.

While it's a good idea to apply to scholarships, it's also important to understand how they can affect your financial aid. Here's what you need to know.

1. You may receive less financial aid

Colleges determine your need-based aid by subtracting your Estimated Family Contribution (EFC) from the cost of attendance. 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 "over-award."

2. 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 loans or grants 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. A 2013 study by the National Scholarship Providers Association noted that 80 percent of schools have such policies in place.

If your financial aid office decides instead to reduce your grant award, the amount you need to borrow won't be affected.

3. 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 Free Application for Federal Student Aid (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 and upperclassmen, 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.


FAFSA is a registered service mark of the U.S. Department of Education.