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How to Set Up a Scholarship Fund, and How Much Does It Cost?

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

How to Set Up a Scholarship Fund, and How Much Does It Cost?

In a recent article, we shared that anyone can start a scholarship fund (link to article 1). In this post, we’ll go into greater detail of the five step process for how to set up a scholarship fund, funding a scholarship, and so much more.

How Much Does it Cost to Start a Scholarship Fund?

Before we get into the steps of creating a scholarship fund, you might be wondering how much this will cost in the first place. According to Money.com, establishing a scholarship fund can cost as little as $10,000. Kiplinger states however, that you usually need at least $20,000 to get your scholarship launched.

Why So Much Is Required for Setting up a Scholarship Fund

The reason you’ll need $10,000 to $20,000 is that this fee is considered the minimum to have an “endowed scholarship.” What is an endowed scholarship? Bankrate explains,

“An endowed scholarship is a donation made to a college that earns interest each year.”

Kiplinger shared that if you hope to give away $1,000 every year, you’ll need $20-$25,000 to produce the interest necessary to fund the annual scholarship. Put another way, the $1,000 is the interest earned on the initial gift, and this amount is what is given away annually. Larger scholarship funds (i.e. hundreds of thousands or millions of dollars in the original deposit) produce more interest making it easier for scholarship programs to give away multiple awards or larger sums to recipients.

5 Steps to Setting Up a Scholarship Fund

Now that we’ve gotten the hard numbers out of the way, let’s explore the five step process for how to set up a scholarship fund. They are:

  • Allocate a budget.
  • Determine who you will be helping.
  • Establish eligibility criteria.
  • Take care of the paperwork.
  • Consider/manage the tax implications.

1. Allocate a Budget


Before setting up a fund for the scholarship, you should decide how much you are able to contribute. Schools and universities may often specify a minimum amount for the scholarship fund, but if you’re not creating one directly with a school there may be some wiggle room. For example, a stand-alone not for profit organization can give away any amount they choose and allow the money to be used for any higher education establishment. However, scholarship programs that work in partnership with specific universities and educational institutions may have to meet certain financial criteria.

Another thing to note when allocating your budget is to consider things like legal expenses, advertising costs, scholarship management software fees, etc.. Outlining your budget is a great way to begin raising funds from potential donors/contributors as well. That transparency will show them exactly where their funds are going which can help you get your program off the ground that much faster.

2. Determine Who You Will Be Helping

Once the budget for the scholarship fund is finalized, you should decide who it is exactly that you plan to help. Is your goal to assist those from less fortunate communities, people that intend to work in a specific field, or perhaps students of a certain religion or socioeconomic background? While some people intend to create a scholarship for a specific group such as women in technology, others develop scholarships to award the most academically gifted individuals.

Whatever group you’re aiming to give financial aid to, determining who they are and what their characteristics are will help you in things like:

  • creating your application.
  • crafting your messaging for promoting and marketing your scholarship.
  • drafting your eligibility criteria.

3. Establish Eligibility Criteria


Now that you know who you are helping, it’s time to establish your final eligibility criteria. At this point you should also decide if this will be a one-time monetary award, or if the recipient will receive financial assistance every year.

Your criteria could include details such as:

  • Education: high school, undergraduate, trade school or graduate school.
  • Demographic details: gender, ethnic background, family background, location.
  • Academic background: School grades/GPA, subject they intend to study, career plans, voluntary work done.

Other requirements might include:

  • Essays on specific topics.
  • Video submissions.
  • Written references/letters of recommendation.

Writing all of this criteria out ahead of time will help you save time and energy when you’re ready to create your form to launch your scholarship program.

4. Take Care of the Paperwork


What does taking care of the paperwork look like when starting a scholarship fund? Depending on your organization it could look like:

  • Filing your LLC/incorporation papers to create your organization.
  • Applying to be a nonprofit organization.
  • Filling out an application for a bank account and signing any necessary documents for the transfer of funds.
  • Drawing up contracts with your accountant and/or investment advisors for how the scholarship monies will earn interest (i.e. stocks and bonds, low-risk mutual funds, money market funds, hedge funds, etc…).
  • Drafting and signing agreements with sponsors/donors, potential universities, and committee members you will be working with.

Having all of your paperwork in order and filed with the proper agencies is critical for the legality and tax liabilities of your scholarship fund. Speaking of taxes…

5. Consider/Manage the Tax Implications

A scholarship is considered a donation if it is made to a fund which is tax-exempt or the recipient is selected using objective criteria without discrimination. The tax deduction will depend on elements such as your tax bracket, contributions, whether your organization is for profit or not for profit, and so on.

If you’re looking into how much money to start a scholarship fund for tax breaks or you want to know how to start a non profit scholarship fund, you might want to start by researching the IRS guidelines regarding grants to individuals. It’s also worth speaking with a financial advisor and an attorney to make sure you’re following the legal guidelines, and not doing anything that could result in fines or fees which could, at the very least, damage your reputation and impact your personal/business assets.

We hope this post has given you a starting point for the information you need to look into for your scholarship fund. Once you’ve got all your ducks in a row, we’d love to help you create your application and launch your program. To learn more about what SmarterSelect can do for you, click here for a free demo.

How-to Guide on Starting and Managing Scholarship Funds

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