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How Do Scholarship Funds Work? 3 Things You Need to Know

Better application management of scholarships, grants, awards, and more.

How Do Scholarship Funds Work? 3 Things You Need to Know

Scholarship funds are a great way to help students pay for college. Perhaps at some point you were the recipient of a scholarship yourself, and it inspired you to create a fund of your own. Or maybe you just want to give back to the community in some way, leave a legacy, or honor a loved one. Whatever the reason for wanting to create one, you might be wondering - how do scholarship funds work? Where do scholarship funds come from? In this post, we’ll uncover three of the most frequently asked questions about scholarship funds to inspire and educate about creating a scholarship program for yourself or your business.

In a previous article we addressed what a scholarship fund is. You can check that article out here (link to article 1), but for now the gist of what you need to know is a scholarship fund is a sum of money set aside specifically for the purpose of aiding an individual or several individuals with the finances needed for higher education.

The three most common questions related to scholarships are:

  1. Where does scholarship money come from?
  2. How are scholarship funds allotted? 
  3. Can scholarship funds be spent on anything?

Now that you know what the frequently asked questions about scholarship funds are, let’s dive into the answers to each of them.

1. Where Does Scholarship Money Come From?

The sources of scholarship funds are typically: federal grants, scholarships and grants from schools and colleges, and private scholarships. 

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Federal grants are monetary awards that are given by the government to help students pay for college. There are also a number of federal student aid programs set aside strictly for veterans and military students (and sometimes their children).

Scholarships and grants from schools and colleges are funds that are provided by the institution itself, and private scholarships are given by organizations or individuals outside of the school.

Where do scholarship funds come from when they are privately funded? Put another way, who funds scholarships? The money can come from any number of sources including, but not limited to:

  • private donations sourced from one or more individuals.
  • money left in one’s will after they have passed.
  • pooled money from nonprofit or even for profit organizations.

2. How Are Scholarship Funds Allotted?

Once it’s received, how does scholarship money work in terms of disbursement? Scholarship funds are typically given based on certain criteria, often determined by the program committee or institution in charge of the scholarship program, such as financial need or academic merit. The specific criteria that are used to allot scholarship funds vary depending on the source of the money.

There are a few different types of scholarships, and each one has its own set of rules and regulations. Most scholarships are either need-based or merit-based.

Need-based scholarships are awarded to students based on their financial need. To apply for these types of scholarships, students will usually have to fill out a Free Application for Federal Student Aid (FAFSA) form. These forms help the government and the various scholarship organizations determine how much money an individual and their family are able to contribute to their education.

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Merit-based scholarships are awarded to students based on their academic achievement or other accomplishments. To apply for these types of scholarships, you will usually have to submit an application, along with transcripts, letters of recommendation, and essays.

Though rare, some scholarships are awarded through a lottery system, where students' names are entered into a drawing and selected at random. To apply for these types of scholarships, you will usually have to submit an application and meet certain eligibility requirements.

Finally, some scholarships are awarded by the school itself. To apply for these types of scholarships, you will usually have to submit an application, and the school will determine who is most deserving of the funds.

The amount of money that you receive from a scholarship can vary greatly. Some organizations only award a few hundred dollars, while others may cover the full cost of a student’s tuition. It all depends on the organization and the type of scholarship.

3. Can Scholarship Funds Be Spent on Anything?

How do scholarship funds work once you are chosen as a recipient? A lot of people wonder whether or not funds can be used on something other than tuition. In some cases, scholarship funds can be used for other expenses related to attending college, such as books or housing. However, the specific use of scholarship funds varies depending on the source of the money.

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For example, federal grants can only be used for tuition and fees. In fact, these funds often are never given directly to the recipient. Instead, the funds are sent directly to the school to ensure they are only used in the manner intended. Private scholarships on the other hand may have different restrictions on how the money can be spent.

Need help launching your scholarship program? SmarterSelect can help! Our scholarship management software has helped hundreds of scholarship funds create their applications and get them online quickly. Click here to get started for free!

How-to Guide on Starting and Managing Scholarship Funds

 

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