Scholarship Displacement Robs Students Of Much-Needed Financial Aid

When it comes to paying for college, common wisdom says to apply for as much financial aid as you possibly can. This includes scholarships and grants that come from institutions and government agencies, and private scholarships, too.

Unfortunately, colleges and universities have policies that can rob students of aid they may have spent weeks or months pursuing on their own. They do this through something called “scholarship displacement,” which reduces aid awards based on outside scholarships a student receives.

To understand scholarship displacement, education attorney Dr. Gregory J. Vincent of Vincent Strategies says to imagine a student from a low-income household is awarded a $5,000 local scholarship.

“The family is excited because they think this means a lighter financial burden,” says Vincent. “But when they submit it to the school, the institution reduces its own $5,000 grant by the same amount.”

This means the net benefit of the scholarship to the family is zero, even if the student earned it based on their grades, an essay, membership in certain organizations or something else.

Is Scholarship Displacement Wrong?

Using outside scholarships as an excuse to reduce need-based aid for students may not be illegal, but most experts agree it’s unethical.

Higher education consultant Tom O’Hare of Get College Going says that, at the very least, the practice nullifies the hard work a student and their family will spend searching for and applying for scholarships.

Not only that, but scholarship displacement typically takes place late in the enrollment process and after students have already committed to a school. This means it can place students and their families in a financial bind after it’s too late to pick a different school or program.

Danilo Umali of Game Theory College Planners says he has been helping his clients fight scholarship displacement for well over a decade, and that he considers the practice a type of “resource discrimination.”

Umali says that families who put significant effort into pursuing outside scholarships could even wind up paying more for college in the end since reduced aid offers can stick through four years of college even if the displaced scholarship was only offered for one year. He also estimates that families who are unaware of financial aid displacement could easily lose $10,000 to $30,000 from a single college offer.

With higher education costs on the rise and cumulative student loan debt reaching more than $1.7 trillion nationally, it’s a shame that colleges and universities are still using this practice — legal or not.

How To Fight Scholarship Displacement

While most would agree that scholarship displacement is a pretty bad concept, you don’t have to blindly accept what your college says. There are steps you can take to fight against this practice or get the decision reversed.

Ask Outside Scholarships To Pay You Directly

If you earn a scholarship from a third party organization and you’re worried about scholarship displacement, you can ask them to pay you the scholarship funds directly instead of sending the money to your school.

James Lewis of the National Society of High School Scholars (NSHSS) says they may also be willing to pay the scholarship into a 529 college savings account if you have one. That way, you can use the funds for room and board, tuition, textbooks, and other higher education expenses without getting the school involved.

“This preserves a student’s autonomy over how the funds are used while maintaining eligibility for need-based financial aid,” he says.

Complain (Loudly)

John Morganelli of Ivy Tutors Network says being a “squeaky wheel” may be enough to get your school to change course when it comes to scholarship displacement.

“Schools are far more likely to make exceptions for families that speak up,” he says.

If aid has been reduced or displaced, pushing back, either through a formal merit appeal or an informal aid conversation, can prompt the school to reconsider.

Vincent adds that students and their families should ask specific questions of the college’s financial aid office about how outside scholarships are treated. Families should also request a copy of the school’s displacement policy in writing, he said.

Appeal The Decision

Brian Safdari of College Planning Experts also says families can appeal to the university through a process many parents do not know about. This can begin a negotiation that could lead to scholarship displacement being reversed, more aid being offered and a better deal for the student overall.

“If you know how to appeal or negotiate and have the right leveraging strategies, you can get the grants reinstated,” he says.

To appeal a financial aid offer through your school, you should reach out to the university’s financial aid office to inquire.

Focus On Institution-Based Aid

If you’re worried about putting a ton of work into earning scholarships you never actually benefit from, you may want to go a different route altogether. Umali says that the best way to avoid displacement is to focus all of your efforts on obtaining grants and discounts directly from the college.

Why? Because many “outside” scholarships are time consuming, overly competitive, and tend to involve smaller dollar amounts.

By focusing on grants and discounts from the college instead, you can potentially obtain $25,000 to $45,000 a year from a single college.

“That dwarfs the amounts you would typically see from an outside source,” says Umali. “Plus, these college offers are good for all four years the student is in attendance.”

The Bottom Line

While many people have never even heard of scholarship displacement, this sneaky problem can rob parents and students of outside scholarships they worked hard to find, apply for and earn.

Unfortunately, this practice is used by all kinds of colleges and universities around the country, although some states have banned scholarship displacement or have laws that limit its use.

If you want to actually benefit from outside scholarships, knowing how scholarship displacement works and how to spot it is your best first step. And if you find a school is limiting your aid because of scholarships from third parties, complaining loudly, filing an appeal, or both could work in your favor.