Why winning outside scholarships doesn’t always lower your college costs
Applying for outside or private scholarships has become a standard part of the college process, right alongside completing the Common Application, FAFSA, and standardized testing.
Families invest significant time and energy into finding these opportunities, hoping to reduce the cost of college. And understandably so, college costs have reached record highs.
But there’s an important (and often overlooked) reality:
Winning a scholarship doesn’t always reduce what you pay.
What Is Scholarship Displacement?
Scholarship displacement, sometimes referred to as the “hidden practice” or the “August surprise”, occurs when a college reduces a student’s financial aid after they receive an outside scholarship.
In most cases, the reduction comes from need-based grants (free money that does not need to be repaid)
Instead of lowering your out-of-pocket cost, the scholarship simply replaces aid you were already receiving. Over the years, I have seen this happen to countless families.
Why Does This Happen?
Colleges often justify this practice using a concept called “overawarding.”
Their reasoning:
- Financial aid cannot exceed the cost of attendance
- Funds should be redistributed to other students with financial need
However, from a family’s perspective, it can feel frustrating—especially when a student has worked hard to earn additional scholarships, only to see their original aid reduced.
The Long-Term Impact (This Part Matters)
In some cases, the impact goes beyond just one year.
Colleges may:
- Assume the outside scholarship will be renewed annually
- Adjust future financial aid packages accordingly
This can result in a significant net loss of aid over four years.
Where Is Scholarship Displacement Restricted?
Some states have taken steps to limit or eliminate this practice, particularly at public institutions:
- Maryland (2017): Banned public universities from reducing institutional grant aid
- New Jersey (2021): Passed legislation prohibiting the practice
- California (2022): Passed the Ban on Scholarship Displacement
- Pennsylvania (2022): Passed HB1642 to prevent schools from reducing aid
- Washington (2022): Added protections, especially for state aid recipients
- Minnesota: Has policies in place to protect students
Even in these states, schools may still adjust aid if:
- Total aid exceeds the cost of attendance, or
- Gift aid exceeds the family’s demonstrated financial need
How Can You Avoid Scholarship Displacement?
If your family may qualify for need-based aid, it’s important to be proactive. Scholarship displacement is widely practiced by more than 50% of colleges and universities. Do your research.
1. Research Each School’s Policy
Before applying for outside scholarships, I encourage you to visit the college’s website for information regarding outside scholarships or call the financial aid office directly.
Ask:
“How do outside scholarships impact my financial aid package?” Continued…
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What Is Scholarship Displacement? (And How It Can Cost You Thousands)