Make Your Scholarship Count: How to Avoid Scholarship Displacement
NOTE: This article is intended for scholarship providers, to help you design your local scholarship program to avoid displacement. Information for students (and parents) is here.
Thank you for investing in our students—the future of our community!
We know that your scholarship is meant to reduce financial barriers and help students succeed. But sometimes, that’s not what happens.
The Problem: Scholarship Displacement
Sometimes, when a student receives a local scholarship, their college takes the money, but rather than reducing the student’s loans or decreasing their bill, the school instead reduces the grants or scholarships they previously promised the student.
Scholarship displacement is when:
- Your scholarship reduces existing aid rather than adding to it.
- The student’s costs and loans are unchanged.
- Your dollars don’t help the student you picked.
How often does this happen? Unfortunately, no one knows, because colleges aren’t required to report it. However, one survey of colleges by the National Scholarship Providers Association found that 20% of schools practice displacement, and a more recent survey of college students with local scholarships found that half of them lost (at least some of) their awards due to displacement. At the Suffolk Foundation, we work with students every year whose scholarships are displaced.
The good news: With a little due diligence, you can prevent this. Here are some ideas.
1. Send Precise Instructions to the College
Add the following language to the letters you send to colleges with your scholarship money:
“This scholarship is intended to supplement—not reduce—existing grants and scholarships. Your school may only use our funds to offset loans, unmet financial need, and/or student/family payments. If the student has an overaward, or your school’s policies prevent you from treating this scholarship as requested, please defer to a later semester or year that portion of our award that would otherwise reduce another grant or scholarship. If deferment is not possible, please return to us any portion of our award that would otherwise reduce another grant or scholarship.”
Download a full-length sample letter here. You may wonder: does this letter actually work? In our experience, not always immediately, but if your student does experience displacement, and you sent this letter, it does work to use this language to “claw back” your funds.
2. Keep Your Scholarship Flexible
- If your student has an “overaward” of funding their first year, hold the scholarship for their sophomore year.
- Make sure your scholarship isn’t limited to tuition. Allow your scholarship to be used for books, equipment, fees, room, board, travel, and all costs of college attendance. Tuition-only scholarships are the most likely awards to be displaced.
3. Educate Your Students
The only person who will know if their scholarship is displaced is the student. (And maybe their parents.)
- Make sure your students know what to watch for, and what to do about it.
- Share this one-pager with your students, and their families.
- Encourage your students to monitor their financial aid, and to tell you if they experience scholarship displacement.
The students at highest risk of displacement are often those students with multiple local and/or college scholarships. It can be helpful to proactively identify those students in advance of scholarship payment; consider asking those students for their financial aid award letters and lists of outside scholarships, and devising your payment strategy accordingly (e.g., in case of overaward, holding your scholarship for sophomore year).
4. Advocate When Needed
If a student’s scholarship is displaced, colleges will sometimes reconsider if providers speak up.
If a student’s aid is reduced:
- Contact the college’s financial aid office.
- Clarify your intent for the scholarship.
- Request that funds be applied to loans or unmet need.
- If they cannot honor your instructions, ask them to return the funds to you.
You may need the student’s written permission before the college will speak with you about their financial aid. Here is a sample FERPA release form.
If the student has a special circumstance, (e.g., a parent has lost a job, a family member has an extraordinary medical expense), you can ask the financial aid officer to use their discretion to adjust the student’s expected family contribution. You can also request that your award be applied to all possible costs of attendance, including travel and computer costs.
Other Strategies to Consider
1. Multi-Year Awards. Most local scholarships are one-time awards. This can sometimes create an overage of funds in the student’s first year. Many colleges also “frontload” their scholarships and reduce merit-based aid after the first year. Consider spreading out your award over multiple years, instead of a one-year payment. This provides support when students need it most (after year one), reduces the risk of displacement, and encourages the student to stay in school and keep up their grades.
2. Paying Students Directly. Some scholarship providers seek to bypass displacement by paying students directly. There are potential downsides to this strategy: the award is more likely to be taxable income for the student, and students are often required to report any scholarships paid directly to them—which may result in displacement after all. Also, if something happens and your student drops out of school, you won’t have a tool to request a refund if you paid the student directly.
3. 529 Plans. Consider paying your scholarship through a 529 plan, which (in our experience) completely mitigates displacement. When disbursed through a 529 plan, scholarship money is treated as a cash payment, does not impact the student’s eligibility for current or future need-based aid, and is less likely to be taxable income for the student.
4. Get Help. If you need assistance with your scholarship program, call the Suffolk Foundation. We offer endowed scholarship funds, use of our common application, 529 payment tools, staff expertise, and dozens of other services.
Learn More (Deep Dive!)
- Great article about displacement for students by Money.com
- One-pager about displacement from the National Scholarship Providers Association
- Research-based white paper about displacement from National Scholarship Providers Association
- Detailed article on 529 plans for scholarship payment from Students First Consulting
Tools You Can Use
Questions or Want to Collaborate?
Contact Kim Landis, Community Outreach Manager
T: 757-923-9090 E: klandis@suffolkfoundation.org