I wish there was a black and white answer, however, it’s unfortunately a gray area in college funding.
Still, we decided to do some research, contacting financial aid departments all around the country, and also had our own run-in with this rule.
Here is what we learned so your family can keep your hard-earned scholarship and financial aid dollars…
What is Scholarship Displacement?
Scholarship displacement, sometimes called “over-award” by colleges, can impact need-based financial aid awards in the package from their school, even if the scholarship (or scholarships) don’t cover all of their expenses.
Many colleges argue that, when your child receives a scholarship, their “need” changes.
For example, if your student is awarded a $1,000 scholarship, the school may determine that their need has correspondingly been reduced by $1,000.
Usually, this occurs if your child is deemed “over-awarded,” meaning that the combination of their scholarship and initial financial aid package offering exceeds the total cost of attending (COA) the school.
If that occurs, the college may decide to give the $1,000 institutional grant they had originally earmarked for your child to someone else who still has an unmet need.
However, it’s important to know if there is a way to avoid displacement and, if it occurs, which aid should be reduced first.
What Kind of Aid is Reduced?
It is important to note that, 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.”
In most cases, here is the order from first to last:
- Government student loans – Unsubsidized
- Government student loans – Subsidized
- Work-study allotments
Duke University follows this practice:
“For a Duke student receiving outside scholarships (and need-based aid); the outside scholarship money is used first to replace any loans or work-study the student has been offered. If the outside scholarship exceeds the amount of loans and work-study offered, it will then begin to reduce the institutional grants and scholarships (not federal grant such as Pell).”
And Duke, by far, isn’t the only school that manages scholarship displacement in that matter.
Financial aid offices also have the ability to ‘reclassify’ the unsubsidized loans as a replacement to your child’s EFC. If reclassifying the amount gets their total financial assistance below the COA, you should be in the clear.
Still, this means they do have carte blanche to act as they please (in most states.. keep reading). However, scholarship displacement should only take place if your student is considered “over-awarded” and the school participates in the practice.
One exception where there is a clear cut rule is in Maryland where the practice of scholarship displacement has recently been banned at public institutions!
In most cases, you can find out in advance whether a particular college uses scholarship displacement. The information may be accessible through the school’s website, likely in a section that discusses financial aid, or your child may need to contact the financial aid office directly for information.
If your child discovers that scholarship displacement could negatively affect them, usually through the reduction of institutional grants, they need to evaluate if this changes which school they would like to attend. It affects the overall affordability of getting an education at that particular college, so it’s important that your student take this into consideration when applying or choosing to attend a specific school.
Can You Fight Back Against Scholarship Displacement?
If you think your child’s financial aid was reduced due to scholarship displacement, you are likely wondering if there is anything you can do.
While there is no guarantee that a college will adjust your child’s financial aid, that doesn’t mean they shouldn’t ask if scholarship displacement played a role and if the decision can be changed.
Here is a true story where we fought back and won:
We had one parent call me, completely distraught, because her son had used our program to secure $6,500 in scholarships for his freshman year in college. Next thing they knew, the school threatened they would reduce his financial aid package by that amount. I was upset for her!
So what did I do?
I called the school myself and asked “hypothetically” if my child would lose financial aid if he received outside scholarships.
The person I spoke with said no!
I told the mother to call back and ask for someone else and, the next thing we knew, they said that was a mistake and did NOT reduce anything!
So her child was able to keep his hard-earned $6,500 (some of them renew, too!) as well as his financial aid package.
In conclusion, scholarships are worth applying to, but you want to know how your university handles outside scholarships.
Until your child is “over-awarded,” and even after depending on the school, it is still extremely beneficial to secure scholarships for college.
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By Jocelyn Paonita Pearson. This post was originally featured on The Scholarship System.