Is Scholarship Displacement a Real Risk to Financial Aid?
Winning a scholarship is a wonderful feeling. Even if it doesn’t cover all of the costs associated with your child’s college, it makes it easier for other financial aid, like grants, to cover the rest. The one potential downfall, which we often receive questions about, is scholarship displacement.
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.
To help you understand this controversial approach to financial aid, including some recent changes depending on your state, here’s what you need to know.
Why Scholarship Displacement Occurs
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, not all schools reduce grants 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.”
Here is the exact text in the legislation: “(2) If the student’s total amount of estimated financial assistance still exceeds his or her need by more than $300, as recalculated pursuant to paragraph (d)(1) of this section, the institution shall cancel any undisbursed loan or grant (other than a Federal Pell Grant).”
In most cases, lessening what they can apply for in student loans before reducing other types of aid is common practice. Next, if there aren’t any more loans to reduce and your child still has aid in-excess of the total cost of attendance, they can reduce work-study allotments before impacting grants.
Duke University follows this practice, reducing student loan and work-study amounts before grants. Here’s what one financial aid officer at Duke had to say:
“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.
So in this situation, the school should take from loans first, work study second, grants or other monies last.
Is This a Clear-Cut Rule?
Nothing about scholarship displacement is black and white. While it’s hard to determine exactly how prevalent scholarship displacement is among colleges, you can’t call it rare.
There are gray areas in the federal laws that dictate how schools must address scholarship funds when determining what to offer in a student’s financial aid package.
Yes, scholarships must be considering when calculating their financial assistance; however, according to 34 CFR 673.5(c)(2)(iii),
“(2) The Secretary does not consider as estimated financial assistance –
(iii) Those amounts used to replace EFC, including the amounts of any TEACH Grants, unsubsidized Federal Stafford or Direct Loans, Federal PLUS or Federal Direct PLUS Loans, and non-federal non-need-based loans, including private, state-sponsored, and institutional loans. However, if the sum of the amounts received that are being used to replace the student’s EFC actually exceed the EFC, the excess amount must be treated as estimated financial assistance;”
This means financial aid offices 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, they should be in the clear.
Still, this means they do have carte blanche to act as they please (in most states.. keep reading).
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.
Want more information about student loans so you and your child can make informed decisions with them? Check out:
Do All Colleges Use Scholarship Displacement?
The simple answer is “no,” not all colleges displace other financial aid if your child receives a scholarship.
In fact, laws protecting students against the practice of scholarship displacement have been enacted in some states – including Maryland, New Jersey, Pennsylvania, Washington, Minnesota, and California (for low-income students).
But, it’s important to understand that it can occur, largely at the discretion of the school. Additionally, your child might not find out that they are subject to scholarship displacement until after they have been accepted to the college and a financial aid package has been created.
However, scholarship displacement will only take place if your student is considered “over-awarded” and the school participates in the practice. This means that if there is still an unmet need after the scholarship and full benefits package is received, then it is unlikely that the school will reduce their award.
Related Video: Private Scholarships: Should You Report Them To The College?
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.
Sometimes, simply calling the school and making a case as to why they should reconsider can yield positive results, such as asking them to reduce the student loan amount your child is eligible for instead of a grant award, or reclassifying the student loan like mentioned above.
Additionally, your student may be able to have their total cost of attendance adjusted by including details on their actual projected expenses instead of those from a standard estimate. In some cases, this will increase the dollar amount associated with their education for that year, taking them out of the “over-awarded” category.
So, if your student thinks scholarship displacement affected their other awards, have them get on the phone! It never hurts to ask, particularly since it can lead to more financial aid, so encourage them to make the call and see what the school has to say.
Further, issues of scholarship displacement can become less relevant if your student can get all of their costs (including living expenses) covered by scholarships. It is possible to have the entirety of your child’s education covered by scholarships, at times with funds to spare that can be spent on food, transportation, and even entertainment.
Scholarships are Still Worth Pursuing!
So, until your child is “over-awarded”, and even after if they can make a good case for themselves, it is still extremely beneficial to secure scholarships for college.
If you and your child would like to learn more about how to pay for college with scholarships, sign up for our free college scholarship webinar! It’s a great way to learn about the scholarship process, identify opportunities, and how your student avoid debt while pursuing their education!
Check out this YouTube Video for more information on scholarship displacement:
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This happened to my son his freshman year in college. The financial aid office told me that all scholarships are applied to the “student need” side of the equation and don’t affect the EFC. We had one local scholarship that distributed the scholarship to our family rather than the institution. This is the only way we’ve been able to impact what we pay out of pocket.