As a high school student, you’ve been encouraged to apply for scholarships to reduce the cost of college. While scholarships can be a huge financial help, some colleges render them worthless with a little-known practice called scholarship displacement.
Never heard of it? Well, most people don’t know what it is — until they experience it firsthand. Here are some answers to key questions about scholarship displacement, including why Maryland banned it, and what you can do to avoid it yourself.
- What is scholarship displacement?
- Why do colleges practice scholarship displacement?
- How does Maryland’s law work?
- How can you avoid scholarship award displacement?
Let’s say you want to attend Mac and Cheese University (a fictitious school), which has a cost of attendance of $30,000 per year.
Based on your FAFSA, the government determines your expected family contribution is $10,000 per year.
That $20,000 difference is your “financial need” — and the maximum amount you can receive in financial aid.
Then let’s say you work hard and earn a private scholarship of $5,000 per year. Federal law requires you to report that award to your university.
If Mac and Cheese University practices scholarship displacement, it’ll then reduce its grants by $5,000 per year, thereby rendering your hard work to get scholarships pointless.
Sounds pretty unfair, right? Why on earth would a college do such a thing?
Well, the laws surrounding financial aid disbursement are complicated. And if a college repeatedly “over-awards” students (i.e., gives them more aid than they need), it could lose federal funding.
As a solution, most colleges use the following workaround:
- Instead of reducing the grants they give to the student, they reduce the loans or work-study portion of the financial aid package.
- This process reduces the overall size of the package (to avoid over-awarding) and the burden placed on the student.
Twenty percent of colleges, however, don’t use that strategy, according to Edvisors — and reduce their students’ grants instead. Why? They say scholarship displacement allows them to redistribute aid to other students who might need it more.
“When a student’s financial position changes, perhaps because of a well-deserved honor like a state legislative scholarship, then the student’s need for our help has also changed,” a Johns Hopkins University spokesman told The Baltimore Sun. “We can put that money to use helping another student who may not have that resource.”
But scholarship providers and students say this strategy makes scholarships pointless and punishes go-getters who seek additional funding.
“For someone who went out and beat the bushes and pounded the pavement and submitted applications to try and get additional grants and make college affordable, the net result of their efforts is zero,” said Jan Wagner, president of nonprofit organization Central Scholarship, told The Baltimore Sun.
“That’s unfair,” she continued. “Especially when we’re talking about low-income and middle-income students.”
Working at Central Scholarship, Wagner and her colleague Michele Waxman Johnson grew frustrated by how often they’d award a Maryland student a scholarship, only to have the student’s college reduce its aid by that amount.
So they spent two years fighting to change Maryland’s laws. And they were successful: House Bill 266, which bans scholarship displacement at Maryland’s public universities, went into effect on July 1, 2017.
Under the legislation, schools can reduce a student’s financial aid package only in one of two circumstances:
- If their aid becomes greater than the cost of attendance
- If their scholarship provider gives permission
Although this change is a huge win for Maryland and its students, there are many more states to go.
If you live in one of them, here are four steps you can take to avoid scholarship displacement.
1. Read your school’s policy carefully
Every university has its own policy on private scholarships. So before you agree to attend a university, log on to its website or ask its financial aid website for its outside scholarship policy.
If it reduces grants (and not loans or work-study) for students who earn additional scholarships, you might want to consider other options.
2. Talk to your financial aid office
In an article for Money.com, Amy Weinstein, executive director of the National Scholarship Providers Association, suggested asking “if the school requires a ‘minimum student contribution’ or ‘summer work expectation’ that cannot be covered by a private, outside scholarship.”
If that’s the case — and you can’t afford the contribution listed — Weinstein suggested requesting this requirement be removed.
3. Talk to your scholarship provider
If you’ve hit a dead end and your aid package is going to be reduced, Weinstein suggested talking to your scholarship provider. See if there’s a possibility you can defer or “bank” your award for another semester or year — or until after graduation.
For example, the Michael & Susan Dell Foundation allows students to save their awards until after they graduate and then use them to pay student loans, according to The Washington Post.
4. Call your representatives
Maryland was the first state to ban scholarship displacement, thanks to the hard work of two individuals.
If you think this practice is unfair, make your voice heard. Contact your representatives and tell them why this issue matters to you. Try Countable, a site that summarizes upcoming bills and makes it easy to reach your reps via phone or email.
Maryland’s new law is a step in the right direction, but it’s just that: a step. To maximize your financial aid — and reduce your student loans — you need to educate yourself about scholarship displacement.
Rebecca Safier contributed to this report.
Need a student loan?Here are our top student loan lenders of 2022!
|1.19% – 11.98%1||Undergraduate|
|1.87% – 11.97%*,2||Undergraduate|
|0.94% – 11.44%3||Undergraduate|
|1.64% – 11.45%4||Undergraduate|
|1.89% – 11.92%5||Undergraduate|
|0.00% – 23.00%8||Undergraduate|
|* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
1 Important Disclosures for College Ave.
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a first year graduate student borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.10% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $141.66 while in the repayment period, for a total amount of payments of $16,699.21. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 4/19/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.49% APR to 13.03% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.19% APR to 10.14% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada.
4 Important Disclosures for Ascent.
Ascent loans are funded by Bank of Lake Mills, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: AscentFunding.com/Ts&Cs
Rates are effective as of 05/01/2022 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes income-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates.
1% Cash Back Graduation Reward subject to terms and conditions, please visit AscentFunding.com/Cashback. Cosigned Credit-Based Loan student borrowers must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest APRs are available for the most creditworthy applicants and may require a cosigner.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 3.47% to 11.16% annual percentage rate (“APR”) (with autopay), variable rates from 1.89% to 11.92% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.60to 11.06% APR (with autopay), variable rates from 2.59% to 11.82% APR (with autopay). PARENT LOANS: Fixed rates from 4.48% to 11.16% APR (with autopay), variable rates from 1.69% to 11.92% APR (with autopay). For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 05/04/2022. Enrolling in autopay is not required to receive a loan from SoFi. Loans originated by SoFi Lending Corp. or an affiliate (dba SoFi), licensed by the Department of Financial Protection and Innovation under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org).
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
Undergraduate Rate Disclosure: Fixed interest rates range from 3.47% – 9.99% (3.47% – 9.35% APR).
Graduate Rate Disclosure: Fixed interest rates range from 4.47% – 9.49% (4.47% – 9.29% APR).
Business/Law Rate Disclosure: Fixed interest rates range from 4.45% – 9.49% (4.45% – 9.29% APR).
Medical/Dental Rate Disclosure: Fixed interest rates range from 4.43% – 8.99% (4.43% – 8.47% APR).
Parent Loan Rate Disclosure: Fixed interest rates range from 4.80%-8.23% (4.80%-8.24% APR).
Bar Study Rate Disclosure: Fixed interest rates range from 7.39% – 12.94% (7.40% – 12.83% APR).
Medical Residency Rate Disclosure: Fixed interest rates range from 6.99% – 10.49% (6.98% – 10.09% APR).
ERL Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of May 1, 2022, the 30-day average SOFR index is 0.29%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
Eligibility Criteria: Applicants must be a U.S. citizen, permanent resident, or eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For applicants who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at any time. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/Promissory Note, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank participating school.
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7 Important Disclosures for Funding U.
Funding U Disclosures
Offered terms are subject to change. Loans are made by Funding University which is a for-profit enterprise. Funding University is not affiliated with the school you are attending or any other learning institution. None of the information contained in Funding University’s website constitutes a recommendation, solicitation or offer by Funding University or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.
8 Important Disclosures for Edly.
1. Loan Example:
About this example
The initial payment schedule is set upon receiving final terms and upon confirmation by your school of the loan amount. You may repay this loan at any time by paying an effective APR of 23%. The maximum amount you will pay is $22,500 (not including Late Fees and Returned Check Fees, if any). The maximum number of regularly scheduled payments you will make is 60. You will not pay more than 23% APR. No payment is required if your gross earned income is below $30,000 annually or if you lose your job and cannot find employment.
2. Edly Student IBR Loans are unsecured personal student loans issued by FinWise Bank, a Utah chartered commercial bank, member FDIC. All loans are subject to eligibility criteria and review of creditworthiness and history. Terms and conditions apply.