How Outside Scholarships Can Affect Your Financial Aid Package

Applying to scholarships can be an incredible way to help fill the gaps in your college budget – but did you know that colleges will sometimes consider those outside funds when awarding you financial aid? That’s not to say that you shouldn’t apply to scholarships in the hope of getting more financial aid – in fact, it’s an important step in the paying-for-college process. It sounds a bit complicated, but don’t worry – by the end of this guide, you’ll have a clear understanding of how it all works, and how it might affect your own financial situation.

What’s an Outside Scholarship?

“Outside scholarships” are scholarships awarded by organizations that aren’t the government or your college. Think of scholarships from places like those won through Going Merry, community organizations, businesses, foundations, or even your parent’s employer. These scholarships can be a game-changer, giving you extra funds to help cover the cost of college.

The Big Question: How Do Outside Scholarships Affect Your Financial Aid?

You’ve worked hard and secured an outside scholarship – congrats! But now you’re probably wondering how this affects your financial aid package from your college. Here’s the lowdown: colleges have rules to make sure that all your financial aid combined doesn’t exceed the total cost of attendance (COA) and is sometimes referred to as your student budget. This includes tuition, room and board, books, and other expenses (billed and not billed by the school).

Why is this a big deal? Because if your total aid goes over the COA, it’s called an “overaward.” Colleges are required to adjust your financial aid package to fix this. But don’t panic – this doesn’t mean you’ll have to pay more out of pocket. It just means they’ll redistribute the aid to keep everything within the COA limit.

Breaking Down the Impact on Your Aid Package

OK, let’s get into the nitty-gritty. When you receive an outside scholarship, your college will adjust your financial aid package. Here’s a step-by-step look at what typically happens:

Notification: First, you need to inform your college’s financial aid office about your scholarship if it wasn’t sent directly to them. This is crucial because they need to know about all your funding sources.
Calculation: Your college’s financial aid office will add up all your aid, including the new scholarship, and compare it to your COA. If the total exceeds your COA, they need to make adjustments.
Adjustment: This is where it gets interesting. Colleges have different policies on how they adjust your aid. Some might reduce the amount of grant aid they give you (which is money you don’t have to pay back). Others might cut back on your loans (which you do have to pay back).

The Silver Lining: Reduced Loans

Here’s the good news: in many cases, colleges will reduce your loans first. This means you’ll have fewer loans to repay after graduation. Imagine that – less debt! Scholarships are like free money, so replacing loans with scholarships is definitely a win. You’ll save on interest and avoid those pesky loan origination fees deducted from federal loans.

Policy Check: Talk to Your Financial Aid Office

Each college handles outside scholarships differently, so it’s essential to talk to your financial aid office. Here are a few questions you might want to ask:

How will my outside scholarship affect my financial aid package?
Which types of aid will be reduced first?
Can the scholarship be applied to the next semester or academic year?
Are there any forms I need to fill out to report my scholarship?

A Real-Life Example

So, let’s say you’ve been awarded a $2,000 scholarship you found through Going Merry. Your total COA for the year is $30,000, and your current financial aid package includes $10,000 in grants and $5,000 in loans. With the $2,000 scholarship, your total aid becomes $17,000, which is still under the COA, so no worries about overawards here. However, if you had $30,000 in aid before the scholarship, your college might reduce your loans by $2,000, leaving you with $3,000 in loans instead of $5,000*.

*Financial Aid example listed above is for illustrative purposes only and may vary by individual.

The Bottom Line

Winning outside scholarships is a fantastic achievement and can significantly reduce your out-of-pocket costs for college. Just remember, it’s essential to communicate with your financial aid office to understand how your scholarship will be integrated into your financial aid package. Each college has its own policies, but the overall goal is the same – to help you manage your education expenses as smoothly as possible.

So, keep applying for those scholarships, and don’t hesitate to ask questions. Your future self will thank you for making smart financial decisions now. Good luck, and go get those scholarships!

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

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Daniel Bod

Writer at Going Merry

Daniel Bod is a seasoned higher education professional with two decades of expertise in financial aid. He began his career at Hofstra University in 2004, after completing his Bachelor's degree from Stony Brook University in 2000, where he provided comprehensive financial aid support to families from diverse backgrounds. In 2007, he transitioned to LIU Post and advanced to Senior Assistant Director of Enrollment Services, dedicating over ten years to assisting students and families in various capacities. During his tenure at LIU Post, Daniel also earned a Master's degree in Childhood Education. Transitioning to St. George's University in 2019, he spent over four years focusing on the financial needs of medical students. Daniel excels in advising on loan options and empowering students and families to make informed decisions about educational finances.