Does Scholarship Affect Financial Aid?
Understand how external scholarships can impact your college financial aid package and what adjustments may occur.
Financial aid and scholarships play a significant role in making higher education accessible. Financial aid generally refers to assistance provided by federal, state, or institutional sources to help students cover college costs. Scholarships, conversely, are funds awarded to students based on various criteria like academic achievement, talent, or specific affiliations, and they typically do not require repayment. This article explores how scholarships interact with and potentially influence a student’s overall financial aid package.
Understanding Financial Aid Calculations
A cornerstone of financial aid determination is the Cost of Attendance (COA), which represents the total estimated expenses to attend a specific institution for one academic year. This figure includes tuition, fees, room and board, books, supplies, transportation, and personal expenses. The COA acts as a ceiling, as the total financial aid a student receives cannot exceed this amount.
Another key component is the Student Aid Index (SAI), an index number calculated from the information provided on the Free Application for Federal Student Aid (FAFSA). The SAI replaced the Expected Family Contribution (EFC) starting with the 2024-2025 award year. This number reflects a student’s and their family’s financial strength and is used by financial aid offices to determine eligibility for federal student aid.
Financial need is then determined by a straightforward formula: Cost of Attendance minus the Student Aid Index equals Financial Need (COA – SAI = Financial Need). Need-based financial aid programs are designed to help cover this calculated gap between the cost of attendance and the family’s ability to contribute. This differs from merit-based aid, such as many scholarships, which are awarded based on a student’s achievements or talents, irrespective of their financial circumstances.
How Scholarships Adjust Aid Packages
When a student receives a scholarship, it is considered a financial resource that can influence their overall aid package. Federal regulations mandate that a student’s total aid, including scholarships, cannot surpass their Cost of Attendance (COA) or their demonstrated financial need. If the combined total of a student’s aid and scholarships exceeds these limits, an “over-award” occurs, necessitating an adjustment to the financial aid package.
Scholarships effectively reduce a student’s demonstrated financial need, as they provide additional funds to cover educational expenses. Colleges typically adhere to a specific order when making adjustments to a financial aid package due to an outside scholarship. Generally, self-help aid, such as federal student loans and federal work-study, is reduced first. This approach aims to minimize the amount of debt a student incurs.
If reducing loans and work-study is not sufficient to resolve an over-award or meet institutional policies, need-based grants may then be reduced. However, the specific types of grants reduced and the exact order of reduction can vary depending on the individual institution’s policies.
Some schools have “stacking” policies that might allow scholarships to fill unmet need first, while others might directly reduce existing aid. Federal financial aid regulations apply to both federal and private or institutional scholarships when determining overall aid eligibility.
Communicating with Financial Aid Offices
Students should report all outside scholarships they receive to their college’s financial aid office. This includes scholarships directly sent to the student. Failure to report these funds can lead to complications, including potential repayment of aid received or adjustments to future aid.
Upon receiving an outside scholarship, students should carefully review their financial aid award letter for any adjustments. Colleges are required to revise award letters if additional aid is received. Look for changes in loan amounts, work-study, or grant aid. The financial aid office will typically send an adjusted award letter detailing how the new scholarship impacts the existing package.
If questions arise about how a specific scholarship will affect an aid package, engage directly with the financial aid office. Students can inquire about the school’s specific policies regarding scholarship “stacking” or “over-award” to understand how their aid might be adjusted. In some instances, if a significant scholarship leads to an undesirable reduction in other aid, such as valuable institutional grants, students may have the option to appeal their financial aid package. This involves communicating any changes in financial circumstances that might warrant a re-evaluation.