Award Displacement

Award displacement occurs when a college or university reduces the amount of awarded Gift Aid due to a student’s receipt of scholarship money from an outside source.  This results in no net benefit, or reduced net benefit, for the affected student. Many foundations and scholarship providers, including the Youth Foundation, have policies in place designed to prevent the scholarship awards from being displaced by colleges. Sometimes this means an otherwise qualifying student who attends a school engaged in award displacement will be disqualified from receiving an outside award. This approach is not intended to harm the qualifying student, but rather is an attempt to ensure that the scholarship provider’s funds are being used in a way that directly and fully benefits the recipients they select, not the schools the applicants choose to attend.

What does award displacement look like, and how can you, as a student, know if you will be affected? The only way to know if a particular student will be affected is for that student to communicate directly with their school’s financial aid office. Each school has its own policies and procedures regarding award displacement and its own calculations for determining Need. Each student has a unique financial profile. There is no way to make blanket statements that are guaranteed to be accurate for any individual situation.

As a student trying to decipher a financial aid offer to determine if they will be affected by award displacement, we have included a very general outline of different award scenarios and the affect they may have on students’ financial aid packages.

For purposes of the following examples, here are a few definitions:

  • Cost of Attendance (COA)—The total estimated cost, including indirect costs such as travel, to attend a college or university for one academic year. No one may receive aid of any kind in excess of the COA.
  • Tuition—The cost for academic instruction for one academic year, often calculated based on the number of credit hours taken.
  • Need—The difference between the COA and the amount a college determines a student can afford to pay. Each college has its own formulas for determining a family’s ability to pay and a student’s Need. It is important to note that colleges that advertise meeting 100% Need are not saying they will cover 100% of the COA. What a college estimates a student or his family can afford to pay may or may not align with the underlying economic reality.
  • Gift Aid—Financial aid from a college or university that a student does not need to repay (either need-based or merit-based).
  • Financial Aid Package—The total financial aid offer made by the college or university to the student. This includes any offered merit-aid, need-based school aid, federal aid, loans, and work-study requirements. The financial aid award letter should include an itemized accounting of the tuition, room/board, fees, and COA, as well as the student’s Need, unmet Need (if any), and the amount the student and parents are expected to pay.
  • Outside Aid—Grants and scholarships awarded by foundations and organizations not affiliated with a college or university, such as Youth Foundation, Inc.

Below are examples of different types of financial aid packages offered by colleges and what that may mean for the student when it comes to award displacement. Read through all scenarios as some principles apply to all categories.

Financial aid package does not include any Gift Aid:

  • Award displacement will not be an issue; there are no awards to displace.
  • If student is offered federal loans, the ratio of unsubsidized loans to subsidized loans may be affected by an outside award. While this may alter a student’s financial aid offer, it is not considered award displacement.
  • Student should be aware of tuition cost vs. other costs, as some outside scholarships are tuition-only.
  • There may be income tax liability for scholarship money that covers expenses other than tuition and books. It is the student’s responsibility to be aware of any tax rules and consequences arising from scholarship awards.

Financial aid package includes merit-based aid as the only form of Gift Aid:

  • While there may be rare exceptions, the general rule is merit-based aid from colleges are not displaced by outside scholarships.
  • The total outside aid and merit-based aid cannot exceed the COA.
  • Again, it is the student’s responsibility to be aware of any tax rules and consequences arising from scholarship awards.

Financial aid package includes need-based aid but does not meet all Need:

  • It should be the case that outside scholarships will be allowed to cover unmet Need (as determined by the college), loans offered in the financial aid package, and money offered through a work-study program before reducing need-based Gift Aid.
  • However, it is imperative that the student verify their specific school’s policy on outside scholarships without making any assumptions.
  • Some schools will reduce need-based aid by 50% of the amount of outside scholarships regardless of unmet Need. For Youth Foundation purposes, this type of award displacement is disqualifying. Applicants should verify the policies for each scholarship to which they apply.

Financial aid covers all calculated Need, but includes loans in the package:

  • Generally, outside awards may offset loan and work-study portions of aid packages before reducing need-based Gift Aid.
  • Even if the student does not accept the offered loans, they should be able to receive outside aid in the amount of the loan portion in the financial aid package. This must be confirmed.
  • If there is a gap between determined Need and the COA, that is not considered unmet Need by the college—it is what the family is expected to pay. Outside scholarships will probably not be allowed to cover that gap.
  • Some colleges breakdown the amount not covered by aid into a “student portion” and “expected parent contribution”. It may be possible for outside aid to cover the student portion, but not the expected parent contribution.
  • Students must verify the policies of their chosen college, or any college they are seriously considering attending.

Financial aid package covers all calculated Need with no loans:

  • While on the one hand these are often the most generous packages from schools with very high endowments, it can be extremely difficult for students to use outside scholarships to cover the portion of the COA that is not covered by the financial aid package.
  • Once a college determines how much they believe a family should be able to afford, the college expects that amount to come from the family. Loans may be used to cover the parent expectation, but often outside aid may not.
  • If there is a student portion (typically $2,500-$4,000), there is a possibility for outside aid to cover that amount only, but this must be confirmed by the financial aid office.

Once a student determines they may be subjected to award displacement, what comes next? The sooner a student confirms the details of their financial aid package and their school’s award displacement policies, the sooner the student will be able to determine if they are eligible the receive outside aid. It may be possible for a student to appeal the Need assessment by their school, but that can be a long process. It may also be possible for outside aid to cover some isolated costs, such as health insurance purchased through the school or a new computer, but the student must ask for these waivers and there may be income tax implications resulting from accepting aid for these purposes. Being proactive in determining eligibility for outside scholarships can help avoid wasting time applying for scholarships that would yield no net benefit and allow more time for an appeal or waiver process to be completed.

There is a growing movement nation-wide to end the practice of award displacement by colleges and universities. Advocacy groups focused on aiding outside scholarship providers, such as the National Scholarship Providers Association (NSPA), and advocacy groups focused on grassroots efforts at the student level are working to end what is considered by many as a fundamentally unfair practice. If you are a student affected by award displacement, consider reaching out to an advocacy group in your area—make your voice heard.