Outside Scholarships 101: How they affect your financial aid package
Written by Veronica Li, Gloria Zhu   


This article is specifically catered to college students who have received scholarships but do not know how it affects their financial aid package.

Outside scholarships are different from grants because they are not awarded by the university or government. Scholarships are generally provided by:
  • Private sector companies
  • Philanthropists
  • Patron foundations
Students often apply for scholarships under the assumption that they will help cover tuition costs on top of the grants and loans they receive as part of their financial aid package. They are usually unaware of the impact these scholarships have on their financial aid package. 
 
According to Federal over-award regulations stated in 34 CRF 673.5, outside scholarships are considered resources, and can therefore reduce one’s financial aid award dollar-for-dollar. Schools are required to deduct from a student’s financial aid package when his/her combined financial aid from all sources exceeds the school’s tuition costs by more than $300.

 
Know the Outside Scholarship Policies

Each university has its own set of policies and guidelines that determines how outside scholarship endowments will affect financial aid packages. Most schools try to use outside scholarships to cover unmet needs, such as loans and work study, first before cutting into institutional grants. Under this type of policy, a student can use his/her outside scholarships to replace loans that eventually have to be paid off. Some universities set aside the first $500, $1,000, $2,500, even up to $6,000 of outside scholarship funding to apply to self-help. The remaining money will then either reduce gift-aid (i.e. grants) and self-help equally (50%), or reduce gift-aid dollar-for-dollar (100%).
 
In the case of some schools, there are stricter regulations with renewal awards than with first-time/one-time awards. For example, outside scholarship money may be deducted from gift-aid first with renewal awards. To get a better sense of outside scholarship policies employed today, let us take a look at a few specific examples.
 
Outside Scholarship Policy for Aided Students
When you receive an outside scholarship (i.e., scholarships awarded from non-governmental sources outside the University), you will receive a dollar for dollar reduction in the self-help component of your financial aid package. Self-help includes student loans awarded to meet need, expected savings from summer earnings, and work-study. University grant will be reduced only after all self-help has been eliminated.
 
How will my outside scholarship affect my financial aid award?
Outside scholarships reduce a student’s self-help offer first, then your student contribution and lastly your MIT scholarship. If you receive outside scholarships totaling an amount larger than your self-help and student contribution, we suggest contacting your outside scholarship providers to defer some of the scholarship funding to a future year.
 
General Scholarship Policies
04.02    In any given academic year, no student's institutional scholarships may exceed the cost of attendance, as determined by the Office of Student Financial Aid. Also, a student’s institutional scholarships, if that student is receiving financial aid, may not exceed his or her financial need when combined with financial aid.  If financial aid must be reduced to resolve an over-award, loans and work-study will be reduced first.


Why Outside Scholarships Are Great?

In the worst case scenario, if the university chooses to reduce federal and state grants before loans, there are still benefits to winning outside scholarships. If the total value of merit-based scholarships won is greater than the amount of need-based grants awarded, the school will then be forced to reduce a student’s loans. So while scholarship money from other sources may not help pay one’s bills now, or reduce one’s cost of tuition, it may help significantly reduce post-college loan obligations. 
 
Secondly, scholarships are honors and resume boosters. Not only do they look well upon the scholarship recipient, but they are also a good reflection of the school and its student body. It is no wonder why universities actively encourage their students to apply for outside scholarships by providing them with incentives to win, like priority in selecting a dorm room or working as a research assistant to coveted faculty.

 
Negotiation Tips & Strategies

It is more important to keep in mind that in the case of over-awards, where the student wins enough outside scholarship money that it starts reducing his/her financial aid package, negotiating with the school can be vital. Schools are likely to accommodate such students.

Reason to Negotiate: if a student can bring in a lot of outside scholarship money, she probably has excellent credentials and is well sought after. The student can in turn negotiate with the school to modify the application of their outside scholarship policy. Some reasonable requests include:
  • Reduce loans before grants
  • Adjust the cost-of-attendance to include living expenses (i.e. – the cost of computers, textbooks, room and board)
In addition, if a student is capable of acquiring so many merits, other schools are most likely vying for him or her as well, and may be offering better financial aid deals. This is another negotiating instrument that the student possesses. She can ask her college of choice to match another school’s financial aid package.

 
Final Thoughts and Recommendations

My recommendation to incoming freshman would be to apply to as many scholarships as they can, so that they can offset the cost of loans that they will need to pay off in the future. Please read the article on Best ways to find resources and apply for scholarships. Since every school has its own outside scholarship policy, students who plan on applying for outside scholarships should consult the college website for more information regarding the specifics of how outside scholarship money will affect their financial aid package. Although there is no legal way to get around federal law that requires universities to reduce federal aid packages for students who have financial aid that exceeds the school’s cost-of-attendance by $300, there are many ways to work around this with the school’s help, as demonstrated in the examples I have mentioned above.


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Last Updated on Wednesday, 18 August 2010 18:45