Some Colleges Take Away Your Financial Aid When You Get a Scholarship


Scholarships are often touted as a smart way to lower the cost of higher education. As a gift from an organization or company that is not expected to be paid back, a scholarship represents free money for college – and that’s great, right? Well, yes. But unfortunately, the old adage “there’s no such thing as free money” might ring true even for scholarships.

Why? Because, according to a new study by the National Scholarship Providers Association, many colleges reduce the amount of their own financial aid when a student gets outside scholarships. It’s a head-scratching decision, and one that’s frustrating to many students who work hard to earn those scholarships.

The reason for this is that private institutions have started to step away from traditional need-based formulas to recalculate how they dole expenses. The result? Scholarships might actually end up costing you aid in other areas – whether that means less federal aid offered or a “minimum student contribution” attached to your tuition regardless of your financial position. In some cases, the amount of a scholarship impacts how much a school is willing to give in other forms of financial aid. A $3,000 dollar scholarship doesn’t sound quite so valuable if a school decreases the amount of other financial aid offered as a direct result.

So what can you do to ensure you’re prepared for what your scholarship may (or may not) do for your college funding:

Talk with your institution to learn more about any financial requirements or minimum payments

Your college aid office is there to help answer any and all questions you might have about expenses. They should be able to walk you through all possible scenarios that could occur and warn you about any financial requirements that might come with to any scholarship. They will also be the ones to communicate whether the amount of federal aid you can receive will be decreased due to your scholarship.

Don’t feel immediately obligated to take out loans in order to fund any unexpected expenses

If you are hit with “minimum student contribution” costs or offered less (or no) federal aid as a result of the scholarship awarded you’ve been awareded, you may be tempted to take out private loans as a way to fund the other expenses. But before you take on the potential high interest rates of private loans, reconsider your financial circumstances and see how much you can realistically pay out of pocket each year. If the fees amount to a sum you can theoretically budget into your year then consider paying as you go rather than pushing off repayment by taking out loans. You’ll skip out on the interest and a potentially lengthy repayment period.

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Research the real life impact of any scholarship you receive

Sometimes scholarships are used as an incentive to attend a certain college or to bring attendance rates up at a particular institution. Although that’s not necessarily a negative thing, make sure you understand the terms behind the scholarships. Though financial aid is a huge incentive and deciding factor, it doesn’t have to be the decisive factor. If you want to study engineering but are offered a full scholarship at a musical academy you might be tempted to “follow the money.” And some cases that’s okay. Just remember that the purpose of your education is to give you a springboard for life and career. And scholarships should support your dreams and goals, not change them or prevent you from pursuing them.

Don’t forget about grants

Grants are also a way to fund college expenses. Acting much the same as a scholarship, grants are awarded to students of low-income as way to fund their education without the expectation of being paid back. They’re another potential way boost to your funding, though they are limited in their aid. The Pell Grant, for instance is capped at $5,645 for the 2013-2014 academic year. Though your federal aid could be impacted by scholarships, it’s worth it to pursue the possibility of receiving a grant.

Remember the value of financial support as you apply

As the price of college increases and traditional methods of community or company funded aid are decreased or hit with fees, more applicants may face the upward financial battle with funding a college education. In addition, those unable to afford the tuition may be left financially unable to pursue higher education. However, scholarship are still an excellent route to explore as a way to receive an education at a lower cost.

Despite the potential cost, scholarships are still an added opportunity to gain extra financial support for your education. Just be sure to research what real impact a scholarship will have on your financial plan.

Have you had any experience with scholarships and unexpected college costs? Feel free to share any advice or experiences you might have in the comment section below.

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  • Jay@MoneyBulldog

    It’s really sad that the world keeps taking something away from education even it being one of the most important aspects in life.

    Sharing your post on G+! Great article!

    • Glad you liked the article, Jay! I agree that education is so very important and too often it gets shortchanged. Thanks for the comment.

  • Marc Sandor Woolf

    The decision to adjust a student’s Financial Aid award because of a scholarship is not supposed to be an arbitrary move on the part of the college or university. There are federal rules and regs that stipulate the amount of aid that can be given based on a total financial picture.

    If these rules are not followed, the school can face sanctions, fines, etc. , since these are federal funds that are being used.

    Financial aid counselors can use what is known as “PJ” or Professional Judgement when determining how much aid to award to a student.

    One of the best ways to learn more about the financial aid maze
    is at

    Good luck!!

  • Lily

    My son received a private scholarship for 1500.00. He had no balance so we assumed he would receive a check for the 1500.00. However, we were told that because the scholarship exceeded the cost of school, it was applied to his student loan. Can anyone explain this to me. Unfortunately, the financial aid counselors simply say, “it’s the rules”. What rules???? Specifically- what law, rule or regulation explains this??

    • Hi Lily, that sounds very frustrating. I’m not sure why they are able to do that, but I think if you ask them again they should be obligated to give you a more complete answer aside from just saying that “it’s the rules.” Good luck!