Written by Dave Moniz
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Edited by Unigo Staff
Finding scholarships can be a daunting task for prospective students and their families. A lesser known issue to be aware of as it relates to scholarships and financial aid is scholarship displacement. Understanding scholarship displacement is critical for making informed decisions about financial aid and ensuring you maximize your college funding without unexpected surprises.
What is Scholarship Displacement?
Scholarship displacement occurs when a financial aid package a student receives from their school is negatively impacted when a student receives a private scholarship. Simply put, when a student receives a private scholarship, the student’s school might reduce the amount of need-based financial aid they originally offered to the student. This can include grants, work-study, and sometimes even loans. Many students have coined this practice as the “August Surprise” or “100% Scholarship Tax.”
How common is Scholarship Displacement?
According to the Hechinger Report, over half of all schools engage in this practice. Some estimate that over 1 million students are impacted by scholarship displacement every year!
What’s behind Scholarship Displacement?
The practice of scholarship displacement is rooted in federal regulations and institutional policies designed to ensure students do not receive more financial aid than the total cost of attendance. Here are the key reasons behind it:
Federal Regulations: The federal government requires schools to ensure a student’s total financial aid package does not exceed their cost of attendance. When private scholarships push the total aid amount over this limit, schools are required to adjust their aid packages.
Institutional Policies: Schools have varying policies on how they handle private scholarships. Some may reduce need-based aid, while others might adjust loans or work-study awards first, so a student’s grant-based aid that does not need to be repaid is not negatively impacted by private scholarships.
The Impact of Scholarship Displacement
The impact of scholarship displacement can be significant, often leading to disappointment and confusion among students and families. Instead of experiencing a net gain in financial aid, students might find that their overall aid package remains the same or changes in unexpected ways. Often, students do not learn that their financial aid award has been reduced until right before they start the fall semester, hence the term “August Surprise.”
Scholarship Displacement Laws
As more become aware of this practice, they are taking action by letting their governmental representatives know they want change! While legislation in Congress that would have required schools to simply disclose to students that they engage in scholarship displacement stalled, several states have banned the practice including California, Maryland, New Jersey, Minnesota, Washington, and Pennsylvania.
Scholarship Displacement in California
Some bans are limited to just public institutions in a state, however, states like California have banned the practice at both public and private schools. Several other states are actively considering legislation to ban the practice as well.
How to Avoid Scholarship Displacement
EXPERT INSIGHT
Before applying for private scholarships, research how colleges you are considering treat private scholarships. Some institutions have more flexible policies and may only reduce less impactful forms of financial aid first, like loans or work-study, minimizing the impact of scholarship displacement. You may need to reach out to financial aid offices of schools you are interested in because many institutions do not always make their policies clear on scholarship displacement online.
Join forces with other students and families to advocate for more transparent and fair policies regarding scholarship displacement. Increased awareness and advocacy can lead to policy changes at institutional and legislative levels.
There may also be other strategies you can employ. Make sure and stay connected to unigo.com for how students and families are creatively protecting themselves from scholarship displacement.
Scholarship displacement is a critical issue that can cause real stress as it relates to paying for college. By understanding this practice and being proactive in researching and communicating with financial aid offices, students can better navigate this complex terrain.
While it may seem daunting, staying informed and advocating for yourself and others can help ensure private scholarships have the intended impact of making college more affordable and accessible! To learn more about scholarship displacement and college finances, visit Unigo’s financial aid resource hub.