Beware: Scholarship Displacement Can Cost You Grant Money

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

iStock

You may be under the impression that winning a college scholarship reduces the amount you have to pay toward tuition, fees or living expenses. But due to a little-known practice called scholarship displacement, that’s not always the case.

Some schools subtract your scholarship winnings from your demonstrated financial need and take away some of their institutional financial aid as a result. So even though you worked hard to earn a scholarship, you might end up facing the same bill as if you never applied at all.

Read on to learn about scholarship award displacement — and what to do about it — so that you’re not caught by surprise when you see your tuition bill.

Here’s the deal with scholarship displacement

Once you’re accepted to college, you’ll get a financial aid package, typically made up of institutional and federal grants, as well as student loans. Students with financial need might also be invited to participate in the work-study program.

The amount of grants you get depends on your “demonstrated financial need,” as well as the policies of your college. While some colleges meet a student’s full financial need, others only offer a limited amount of aid.

However, colleges that practice scholarship displacement may adjust your financial aid award lower, based on your scholarship winnings. Basically, they’ll subtract your scholarship funds from your demonstrated financial need.

Since you now supposedly have less financial need, the college could take away part of your other grant awards as a result. Note that colleges can’t subtract from the federal Pell Grant — that will remain intact regardless of your scholarship winnings.

Why some colleges practice scholarship displacement

Before you freak out, note that most colleges don’t practice scholarship displacement. According to Edvisors, roughly only 1 out of 5 colleges will cut into those grant awards if you win scholarships. Rather, most schools will keep your grants at the same level and instead subtract from your student loan offer, so you won’t have to borrow as much to attend.

But why do any colleges practice scholarship award displacement at all? Well, they interpret the fact that you won a scholarship as evidence you have less demonstrated financial need. If you won a $1,500 scholarship, the college decides your need has gone down by $1,500.

Since you now have less need in the eyes of the financial aid office, it thinks you have been over-awarded financial aid — your package offers $1,500 more than you need. So it reduces its grant awards accordingly, perhaps to give them to another student with more financial need.

Colleges can practice scholarship displacement if your scholarship assistance exceeds your financial need by $300 or more.

Which states have banned the practice so far

By now, you might be feeling this system is pretty unjust. You worked hard to win a scholarship, so shouldn’t college become more affordable? It seems very unfair.

Well, the state of Maryland agrees with you. In July 2017, Maryland banned the practice of scholarship displacement at its public colleges and universities.

According to the state, colleges can only practice scholarship displacement if the student’s aid becomes greater than their school’s cost of attendance or if their scholarship provider gives them permission.

If neither of these conditions are met, then the school can’t cut into a student’s grants just because they won a scholarship.

Find out if your school treats scholarships as over-awarded financial aid

Since other states haven’t followed Maryland’s lead yet, it’s up to you to see if your college practices scholarship award displacement. The best way to find out is by calling the financial aid office.

If you do find yourself facing so-called “over-awarded financial aid,” it can’t hurt to ask the financial aid office to reconsider. Request that they adjust your student loan offer instead of cutting into your grants.

Or perhaps the school can raise your estimated cost of attendance by adding in certain expenses, such as the cost of a new laptop, so your aid no longer looks like an over-award. Although there’s no guarantee a financial aid officer will work with you, it’s worth making the request.

Another workaround is calling up your scholarship provider and asking them to defer the scholarship award until a later year. Although you might end up facing scholarship displacement in the future, you might at least get to keep your financial aid package intact for freshman year.

Applying for scholarships is still worth the effort

At first, scholarship displacement might discourage some students from seeking free aid. What’s the point of applying to scholarships if they won’t make college more affordable?

But remember that 80% of schools won’t cut into your grants for receiving other scholarships. So pursuing scholarship money could still help a great deal and stop you from having to borrow as much in student loans.

And if you do end up at one of the approximately 20% of colleges that engage in scholarship award displacement, ask your financial aid office to reconsider. You could even contact your representative in Congress: By bringing this issue into the spotlight, more states might join Maryland in banning the practice of scholarship displacement.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Do you have a question?