You've done the work. Raised the funds, built the program, selected deserving students. Then you discover your $5,000 scholarship didn't actually reduce a student's financial burden.
Why? The college just cut their institutional aid by the same amount.
This is award displacement, and it happens more often than most scholarship providers realize.
Award displacement occurs when a college reduces a student's financial aid package in response to receiving an outside scholarship.
The student gets your award, but their total aid stays the same. Your scholarship essentially subsidizes the institution rather than helping the student.
It's frustrating. It undermines your mission. And for many scholarship providers, it's entirely preventable.
Federal regulations require colleges to include outside scholarships when calculating financial aid packages. That part is non-negotiable. But how colleges respond to outside scholarships varies widely.
Some institutions have policies that protect students. Others routinely reduce institutional grants when outside scholarships arrive. The difference comes down to institutional policy and how they prioritize different types of aid.
Here's what typically happens: A student receives your scholarship and reports it to their financial aid office. The college then reviews their aid package to ensure it doesn't exceed the cost of attendance. If the new total would exceed allowable limits, they reduce something.
The question is what they reduce first.
Best case scenario: The college reduces student loans or work-study requirements. Your scholarship replaces debt or reduces hours the student needs to work.
Worst case scenario: The college reduces need-based grants dollar for dollar. Your scholarship replaces institutional aid, and the student sees no benefit.
Middle ground: The college has a thoughtful policy that considers the source and purpose of outside scholarships, protecting certain awards while adjusting others.
Understanding these scenarios helps you structure your scholarship program to maximize student benefit.
Not sure if displacement is happening to your recipients? Watch for these warning signs.
Students report receiving your scholarship but seeing no change in their out-of-pocket costs.
This is the most obvious indicator. If multiple students tell you the money didn't help reduce what they pay, displacement is likely occurring.
Your recipients attend institutions known for aggressive aid recalculation.
Some colleges have reputations in financial aid circles for routinely reducing institutional grants when outside scholarships arrive. Talk to your recipients about their experiences.
You notice patterns in which schools cause problems.
If students at certain institutions consistently report displacement while students elsewhere don't, you've identified institutions with problematic policies.
Students express confusion or frustration about their financial aid packages after receiving your award.
When students don't understand why their aid changed, it often means the college reduced other aid without clear explanation.
You can't control college policies, but you can structure your program to minimize displacement and maximize student benefit.
Some scholarship providers send funds directly to the institution. Others pay students directly. The method matters.
When you pay the college directly, they must count it in the financial aid package. This triggers recalculation and potential displacement.
When you pay students directly for non-qualified educational expenses (books, transportation, living costs not billed by the college), it may not need to be reported as a resource that reduces aid.
Students should verify reporting requirements with their financial aid office, but direct payment for non-billed expenses often provides more flexibility.
This strategy works particularly well for scholarships designated for specific purposes like textbooks, technology, or professional development expenses that fall outside tuition and fees.
Colleges typically recalculate aid packages each year. A multi-year scholarship commitment gives you options.
Consider structuring awards with increasing amounts in later years. Start with a smaller award freshman year when students typically receive more institutional aid. Increase the scholarship amount in subsequent years as institutional aid often decreases.
This approach recognizes that many colleges front-load their institutional aid in freshman year to attract students, then reduce it later. Your increased support in years two through four provides stability when institutional support declines.
Scholarships designated for particular expenses sometimes receive different treatment in aid recalculation.
Study abroad scholarships, for example, often support costs not covered by regular financial aid. Research or professional development awards may fund opportunities outside the standard aid package. Technology or equipment scholarships for specific program requirements.
When your scholarship clearly funds something beyond basic attendance costs, colleges have less justification for reducing other aid.
This takes time but pays dividends. Develop connections with financial aid directors at institutions where your recipients frequently enroll.
Explain your mission. Share how your scholarship differs from general aid. Some colleges will work with scholarship providers who take time to understand their constraints and communicate clearly.
Don't approach this as adversarial. Financial aid officers operate within complex regulations and institutional policies. Most want to help students but work within significant constraints.
Building relationships helps you understand their perspective and find mutually beneficial solutions.
Target your scholarships to students whose aid packages are most vulnerable to displacement.
Students with primarily loan-based aid packages benefit most from additional scholarships.
Your award can directly replace loans, improving their financial situation even if the college makes no other changes.
Students with large institutional grants face higher displacement risk. That doesn't mean you shouldn't help them, but understand the challenge you're addressing.
Students at institutions with clear policies protecting outside scholarships from displacement. Some colleges explicitly protect outside scholarships up to a certain amount before reducing institutional aid.
Students must report outside scholarships to their colleges. Federal regulations require it. Your scholarship paperwork should make this clear while helping students advocate for themselves.
Provide students with a clear explanation of your scholarship's purpose and any restrictions. This documentation helps financial aid officers understand how to treat the award.
Encourage students to ask their financial aid office about the college's outside scholarship policy before accepting awards. They should understand how receiving your scholarship will affect their total aid package.
Suggest students request that colleges reduce loans or work-study before reducing grants. Many institutions will honor this request if students ask explicitly.
Help students understand they can appeal financial aid decisions. If a college reduces aid in a way that seems unreasonable, students can request reconsideration.
Don't rely on assumptions about your scholarship's impact. Collect data to understand what's really happening.
Survey recipients about their total aid packages before and after receiving your scholarship. Ask specific questions about changes to grants, loans, and work-study.
Track which institutions your recipients attend and how those institutions typically handle outside scholarships. This helps you identify patterns and adjust your approach.
Follow up with recipients throughout their college experience.
The answers to these questions help you demonstrate impact to donors and board members. It also reveals whether your current approach needs adjustment.
Despite your best efforts, displacement will sometimes occur. How you handle it matters.
Be transparent with students. If you discover a college routinely displaces outside scholarships, tell applicants from that institution upfront.
Let them make informed decisions about whether to pursue your scholarship.
Consider adjusting your selection criteria if displacement is widespread at certain institutions. You might prioritize students at colleges with protective policies, or students whose aid packages are primarily loan-based.
Work with colleges to change problematic policies. When multiple scholarship providers raise concerns about displacement, institutions sometimes reconsider their approach.
Connect with other scholarship providers. Share information about which colleges have student-friendly policies and which don't. Collective action can drive policy changes.
Modern scholarship management platforms can help you track and prevent displacement.
Use your scholarship management software to collect data about recipient aid packages. SmarterSelect, for example, allows you to create custom questions that gather information about institutional aid, loans, and work-study.
Track outcomes by institution. When you have data showing which colleges displace your awards, you can make strategic decisions about future recipients.
Communicate directly with students through automated but personalized messaging. Send information about how to report scholarships and advocate with financial aid offices.
Generate reports that show your actual impact. When you can demonstrate to donors that your scholarships reduce student debt rather than subsidizing colleges, you strengthen your fundraising position.
Award displacement is frustrating, but you're not powerless. Start by understanding the scale of the problem in your program.
Survey your current recipients about their aid package changes. This gives you baseline data about displacement frequency.
Review your scholarship structure and payment methods. Could you adjust timing, amounts, or purposes to reduce displacement risk?
Reach out to financial aid offices at institutions where your recipients concentrate. Build relationships that help you navigate their policies.
Update your recipient communications. Make sure students know how to report scholarships and advocate for themselves.
Most importantly, remember your mission. Your scholarship makes a difference even when displacement occurs. Students who receive your support know someone believes in them. That intangible benefit has real value.
But the goal is tangible benefit too. With strategic planning, clear communication, and data-driven decision making, you can structure your scholarship program to deliver maximum impact where it matters most: in students' lives and financial futures.
Want to know if your scholarships are really helping students or just subsidizing colleges? SmarterSelect makes it easy to collect data about recipient aid packages, track outcomes by institution, and generate reports that show your real impact. Our platform helps you survey recipients, identify displacement patterns, and communicate effectively with students about reporting requirements. Schedule a demo to discover how you can maximize your scholarship impact and prove your value to donors.