HELP! I’ve been displaced!

So you’ve searched for scholarships, you’ve researched the ones for which you qualify, you’ve written an amazing essay, and you are lucky enough to receive a scholarship, only to find out that the college or university you are attending has reduced some of your other financial aid as a result. WHAT HAPPENED?

Some of my friends who work for community organizations providing scholarships call this phenomenon “scholarship displacement”. In the financial aid office, we refer to this as fixing an “overaward”. But what does it all mean for you?

To begin to understand why a college might take other money away if you receive a scholarship we need to go back to a concept I talked about in an earlier blog post: COA – EFC = Need. Remember that COA is cost of attendance (how much your education for that award year will cost you including both direct and indirect costs). Your EFC (or Expected Family Contribution) is a measure of how much you and your family can afford to pay towards those costs. And your Need is the difference between these two figures.

Let’s see how this works in an example:

The Financial Aid Barrel

In the picture above you see a school that costs $55,000 (chances are, your school costs a lot less, but for this example we will use the higher figure). This family’s EFC is $10,000 which leaves them with $45,000 worth of Need.

The college or university has offered this student a combination of grants and scholarships of $38,000, loan of $3,500 and a work study allocation of $1,500. The total financial aid offered is $43,000 leaving this student with an unmet need of $2,000.

So let’s say this student goes out and receives a $2,000 private scholarship. What happens to that money? Where does it go?

Well, according to the Federal government, any scholarship awarded by an agency or foundation outside of the college has to be considered a satisfying the need of a student, and if necessary, other financial aid has to be adjusted to make room for this scholarship.

In our example, though, there is room for a $2,000 scholarship (replacing the unmet need) so no change in the financial aid offer would be required. Imagine, however, that the student wins another scholarship for $5,000 bringing their total outside scholarship to $7,000. What now?

In this case the college is most likely to remove the work and loan funds to make room for the total amount of the scholarship. By replacing the unmet need, the student loan, and the work award, the college would make room for the $7,000 scholarship award.

What happens next? What if the student earns more in outside scholarships? If this is the case, most institutions will next reduce their own need-based scholarships or grants before the student will see an impact on the EFC.

So how do you avoid this problem and maximize your own scholarships? First, you need to understand your own financial aid offer. What is your COA? What is your EFC? What is your unmet need? By knowing your unmet need you will have a better sense of how much in outside scholarship you can receive before this becomes an issue for you.

You may also want to ask your school if it is possible to increase your COA. Some colleges will consider the purchase of a laptop computer, or higher than usual expenses (room, transportation, books, etc) and – with documentation – may be willing to make an adjustment to your COA therefore leaving you with more unmet need that can be filled by your scholarship.

Another option, especially if you receive a large outside scholarship, is to ask if you can use the scholarship for a future year (or perhaps summer enrollment). Often scholarship providers will let you defer some portion of your award, especially if you can show them that by doing so you can keep more of your other financial aid.

Just know we don’t want to displace your funds, but we are required to resolve these overawards. Be in touch with your financial aid officer to see what can be done to ensure you receive the benefit of this money you have worked so hard to earn.

For my Take Stock friends (or anyone with a Florida Prepaid plan or other 529 plan), keep in mind that a 529 plan is not considered a scholarship for these purposes. Next time we are going to dig into how the Florida Prepaid account you have received is handled by financial aid. Stay tuned!