Can Private Scholarships Displace My Financial Aid?

Scholarship Displacement

Can Private Scholarships Displace My Financial Aid?

Published July 1, 2019 | Last Updated May 16th, 2023 at 01:21 am

Scholarship Displacement

Your student has worked hard both in school and in the scholarship application process.

You’re excited that they’ve won some small scholarships, which you hope will help make a dent in the high cost of college.

Suddenly, you get an update to your student’s aid offer from their target school. The amount of need-based aid they offered has gone down – because you have other scholarships. How can that be possible??

You’ve just experienced “scholarship displacement” or in other words the college is telling your student they can not stack their private scholarships with aid or scholarship money offered by the college.

This is a rule that is not readily discussed during college visits and tours. But, it can have a huge impact on the value of any private scholarship your child may receive. Some schools decide that since you have outside scholarships, your need is lower and they won’t award you as much.

It almost makes you question whether the efforts of all those scrappy students who work their fingers to the bone by applying for small awards are worth it.

Is there anything you can do?

What Is Scholarship Displacement?

No college or university has an unlimited amount of money to give to students. Instead, most try to meet as much need as possible for all students. If a student has outside money from another source – such as outside scholarships – then they have less of a need for the money that the school might award them. That institutional money can go to another student whose need is greater.

This generally happens if your student is considered “over-awarded.” That is, if outside scholarships and other financial aid offered by the school is above the cost of attendance (COA) at the college or university once your EFC is deducted.

Sue is a parent in our Paying For College 101 Facebook group. Here’s what she had to say about Scholarship Displacement.

“I was told that when we went for the financial aid meeting with the school my daughter now attends. I didn’t understand why for years we were told to apply for every scholarship under the sun.

‘Make that your student’s full-time job,’ but in reality we would have lost out on money the school was giving us if my daughter hadn’t received ANY private scholarships (DD only applied for a few and didn’t get any).”

Most families want to put outside scholarships toward their EFC, but that’s not how schools handle it much of the time.

What Aid Can Be Affected By Private Scholarships?

Keep in mind that usually only need-based aid is affected.

According to the National Association of Scholarship Providers, “Certain types of federal aid, such as the Federal Pell Grant, are not subject to the over-award regulations and are never reduced.”

Merit awards are generally not reduced due to outside scholarships, but it pays to ask the school to make sure.

Nothing is cut and dried, however.

Federal laws that dictate how schools must handle scholarship funds when they ascertain what to offer in a student’s financial aid package are, more times than not, unclear.

Several types of need-based aid can be reduced if your student wins outside scholarships. Generally, they are reduced in a specific order. Here’s the order you’ll see reductions:

Government student loans – Unsubsidized
Government student loans – Subsidized
Work-study allotments

In some cases, the financial aid office can reclassify unsubsidized loans to apply to your EFC, which can help your family still have access to that aid. But, as in any case, you MUST check with each school to see what their policy is.

If you’re concerned that your student’s aid offer could be affected by outside scholarships, check the school’s website under the financial aid information or contact the financial aid office. They will be able to tell you if displacement occurs and how it works.

This is what happened to Jackie’s son: “All of my son’s aid was transferred to unsubsidized federal loans and work study was pulled due to him winning local scholarships. Catch 22!”

Can You Prevent Scholarship Displacement?

If you’re frustrated with the idea that your child’s aid could be reduced because they won another award, there are a few things you can do. Displacement may affect which schools your student is interested in attending. After all, it affects affordability in a big way.

Not all schools use displacement, and you can find out the policies by contacting the financial aid office.

The University of Pittsburgh, for example, has publicly stated that they don’t agree with the practice and don’t use it at their institution.

If it’s a possibility for you, you could focus on public schools in Maryland, where scholarship displacement is banned.

You could get involved in the lawmaking process in your own state as well, trying to get a similar ban passed where you live.

You can also encourage your student to focus on scholarships that help avoid displacement, like the Michael & Susan Dell Foundation, which allows students to defer their scholarship award money until they graduate.

It won’t affect current aid and can be used to help repay student loans in the future.

Many scholarships will also agree to divide the awards up into four installments, so there will be available money for all four years of school.

Finally, you can request a reconsideration of the displacement from the school’s financial aid office. There’s no guarantee it will work, but you can always ask and see if the decision can be changed.

Are Outside Scholarships Worth the Effort?

Because the first thing to be reduced are loans – which your student has to repay – some outside scholarships can be very helpful. Anything that doesn’t add to debt is good!

If you have a significant financial aid gap, though, those federal loans may be an important part of affording school. Realizing that the scholarship will replace the loan instead of reducing your gap can be frustrating.

Another good reason to keep a scholarship is if it’s a four-year scholarship. Because your aid package will change every year depending on taxes, financial changes, and other factors, it may be better to have a guaranteed four-year amount than rely on need-based aid.

On the other hand, if the scholarship is hard to maintain because it requires service hours, a specific GPA, or other qualifications, it might be best to turn it down and retain the need-based aid instead.

How Other Parents Have Handled Displacement

Parents in our Paying for College 101 group have frequently run into scholarship displacement.

One parent chose not to even focus on scholarships:

“By getting an outside scholarship, you reduce your need. Hence, the award is reduced. That’s why I did not insist on my kids wasting time on applying for scholarships. The colleges they are in, or applying for, are on the very high end.

These colleges WILL reduce your award if you get an extra scholarship.”

Another parent shared:

“Apply for financial aid first. I would just find out what the policies are around this for your schools so you’re not surprised. Not all of them do this. My kid’s school handles internal and external scholarships differently.

Now we know.”

Another family pointed out that asking questions is the key to avoiding unpleasant surprises:

“The questions to ask each school are whether scholarships will stack, whether outside aid reduces institutional aid, and make them spell it out. Have some hypotheticals to question them about.

For example, I can get my kid a scholarship through my union. If we do that, and we bring $5,000 to the table, what are you going to do with his merit scholarship? What are you gonna do with his work-study? With his grant? (Whatever you think you will get.)”

Another parent shared that they found different schools had different policies:

“It really depends on the school. Usually how a school handles outside scholarships is found somewhere on their financial aid pages. I Google ‘[college name] outside scholarships.’”

Steps to Avoid Scholarship Displacement

Affording college is a challenge, and scholarship displacement can make it harder. It’s a common practice, but you can choose schools that don’t use it. It’s an extra research step, but it’s worth the time and effort!

Are you interested in finding schools that offer excellent merit aid to students like yours?

We’d love to help.

Check out our essential tool, R2C Insights, for researching colleges and developing a list of affordable schools that can offer your student merit scholarships.






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