Category: Save Money

Financial Aid Displacement: What Families and Scholarship Providers Should Know

By Scholarship America

Updated May 2023

Students and their families are often surprised to realize some colleges reduce their financial aid packages when the student earns private scholarship dollars—a practice called financial aid displacement or award displacement. Colleges that practice displacement say it helps free up more funds for more students; students and families say it unfairly punishes those making the effort to earn scholarships. Whatever your perspective, it’s a complicated issue without easy answers, and COVID-related upheaval has only added to the confusion.

The most accurate description we’ve seen of displacement is “the Catch-22 of financial aid”—and because it’s so controversial and has a major impact on students and schools, it is increasingly at the forefront of education discussions. Here’s a look at recent developments.

Legislating Against Displacement

In 2017, Maryland became the first state to bar public colleges and universities from practicing displacement. The state legislation passed in response to a two-year-long campaign led by the nonprofit Central Scholarship, who grew frustrated with the number of times “they would award a student money and a university would reduce that student’s financial aid by the same amount.”

According to the Baltimore Sun, the law does “allow reductions when a student’s aid exceeds the cost of college or with permission from a scholarship provider.” These provisions, allowing a very limited form of displacement, are designed to address colleges’ concerns that funds will be directed to students who don’t need them, at the expense of those who do.

In 2021, New Jersey joined Maryland, becoming the second state to ban displacement; Washington followed in March of 2022, when Governor Jay Inslee signed a bill into law that “prevents scholarship displacement for Washington college students who receive state-sponsored financial aid.”

With support from Scholarship America and Dollars for Scholars, legislation preventing displacement has been signed into law in California and Pennsylvania; legislation is currently pending in Arizona, Illinois and Wisconsin as well.

Proactive Scholarship Providers

As legislatures slowly begin to work on displacement issues, some scholarship providers are working to take matters into their own hands. At the forefront of financial aid innovation is The Michael and Susan Dell Foundation, whose Dell Scholars program is managed by Scholarship America. They take unique approaches to scholarship aid that reduce the chance of displacement. (They also committed $100 million to help communities around the world deal with COVID-19.)

Longtime Dell Scholars Program leader Oscar Sweeten-Lopez told the Baltimore Sun “‘[t]he majority of the students that we work with will face some kind of a displacement.’” To ensure that those students—around 3,800 in the program’s 14-year history—get the most out of their awards, the Dell Foundation allows students who face displacement to defer their scholarship money until they graduate. At that point, they can claim the full value of the scholarship and use it to pay off loans.

In the wake of COVID-19, Dell Scholars is working to ensure students don’t lose out due to cancelled or deferred classes—including creative solutions like using 529 college-savings plans, which are not susceptible to displacement in the way scholarship funds are. (For a deep dive on 529 plans and scholarships, check out this detailed Mark Kantrowitz article.)

How Can Families Be Prepared?

There are no real definitive numbers as to how many colleges practice displacement, although one recent survey indicates up to half of private scholarship recipients faced some reduction in institutional financial aid (grants, loans or workstudy.) If you’re facing, or think you may be facing, displacement, this fact sheet from the National Scholarship Providers Association covers many of the potential questions. These are the three to start with:

1. Does my college practice either partial or full displacement?
   If the answer from the financial aid office is “no,” you’re in the clear.
2.  If displacement is practiced, will the college reduce loans first?
   This is the best-case scenario if a school answers “yes” to the first question. If they’re going to reduce any part of the financial aid package, you want it to be the amount of loan aid, not grant aid. (That way, even though you’re losing out on some funds, they’re funds you’d have to pay back after graduation.)
3. Do I have to use my private scholarship for this year’s tuition?
   Financial aid packages differ wildly, and so do private scholarship guidelines and restrictions. As COVID-19 impacts students’ and families’ plans, schools and scholarship providers are tending to be more flexible about deferring aid; if you find yourself facing the possibility of displacement, contact both your school and your scholarship provider to explore your options. It may be possible to defer the funds to a subsequent year when your need may change; it may also be possible to use the funds for books, room and board or other fees not reflected in your aid package.

Student Resource Guide: Fall 2023

By Matt Konrad

Whether you’re in high school, college or just thinking about the next steps in your education, it can be tough to know where to start. Applications, admissions, financial aid and scholarships all have their own deadlines – and they happen while you’re also trying to balance your regular schoolwork, your job, your family and your social life.

To help keep you organized and on track, we’ve compiled some important and useful resources to use on your journey toward your educational goals.

What’s Going on with FAFSA?

The Free Application for Federal Student Aid (FAFSA) is a vital part of your financial aid search, and it’s undergoing its biggest changes in decades—and opening for applications later than usual for the 2024-25 school year.

The “Better FAFSA” initiative is designed to be simpler and more accessible. As SavingforCollege.com says, the FAFSA overhaul “will not only make the form easier to fill out by eliminating two-thirds of the questions, but it will also affect the determination of financial need for low-, middle- and high-income students.”

Because of delays in implementing the new system, the FAFSA won’t open until December 2023. When it does, applicants should find it simpler to complete the form, access Pell Grants and qualify for need-based financial aid. (NerdWallet and USA Today run down many of the details for students and families; NCAN has a huge library of helpful resources for advisors, counselors and parents.)

One thing you need to do before you start the FAFSA in December is to create a Federal Student Aid (FSA) ID on the studentaid.gov website. This username and password is required to log in and access all Federal Student Aid websites, including the FAFSA. If you don’t yet have an FSA ID, uAspire has an easy guide to creating one, even if you or your parent or guardian don’t have a Social Security Number.

Finally, don’t forget that you have to update your FAFSA every year if you want to continue receiving the aid you qualify for! In the meantime, if you have income or life changes, here’s the Department of Education’s guide to updating the information you’re reporting.

Scholarship Resources

Do’s and Don’ts for Your Scholarship Search: Hear directly from one of Scholarship America’s program designers about what to do (and not do) as you start looking for private scholarships – and download our Knowledge is Power quick-start guide for reference!

Scholarship America’s Scholarships: We’re not the only provider of private scholarships, but we are the largest! Browse more than 100 programs here on our website, including the impactful and renewable Dream Award and Barry Griswell Scholarship. (We also partner with more than 1,100 companies to manage scholarships, so check your and your parents’ workplaces for opportunities!)

Finding Your College Fit

The Common App: New and transferring college students can explore and apply to more than 900 partner colleges with a single application using the Common App, which opens August 1 each year. The Common App website also helps you plan your college road map and learn about ways to pay for college.

BigFuture: A program of the College Board (the folks who bring you the SATs), BigFuture is a one-stop college planning resource for high schoolers, transfer students, parents and adult learners – and your application to colleges automatically enters you into a scholarship drawing!

Setting Yourself Up to Succeed

Get Schooled: This free (and advertising-free) resource was founded by Paramount and the Bill and Melinda Gates Foundation, and provides students with tools to help you get into college, plan your path and secure your first job. You can access everything from personalized essay help to one-on-one texting with a financial advisor to résumé and job hunting advice. Did we mention it’s all free?

Getting College Credit for Life/Work Experience: Whether you took a semester off during the pandemic, or a decade off to raise a family, getting back to your education is both difficult and rewarding. CollegeTransfer.net has a valuable guide to changing or returning to school, and assessments like the College Board’s CLEP test can help you turn your life and work experience into college credit.

Keeping Your Study Skills Sharp: Anki offers a free, downloadable flash-card app and website that you can customize for all kinds of study areas. Whether you’re in college or you’re working your way back into academic shape, it’s a great way to use your free time to stay sharp.

Facing Challenges of Student Life

Who’s Who On Your Campus: College is a big change from high school—especially if you’re the first in your family to attend. Fortunately, there are all kinds of people on campus who can help you, and successful students take full advantage of the many campus support resources available to help. Never again will you have access to so much in one place—and most of it at no additional cost!

Swipe Out Hunger: Food insecurity is a real issue for millions of high school and college students, and a lack of good nutrition can derail your educational path. Swipe Out Hunger is a network of anti-hunger resources at more than 450 partner colleges. If your school isn’t one of them, there are still plenty of options out there; check this roundup, Google “food pantries” in your town or connect with your student services office.

Emergency Grants for Financial Setbacks: If you’re balancing work, school and family life, an unexpected expense can force you into some tough decisions. Emergency grants, provided by your school or a local nonprofit, can help keep you on track when setbacks strike; here’s an overview, and be sure to check with your advisors on campus for options that can help you.

Learning What To Watch Out For

Financial Aid Displacement Could Cost You: While a number of states have made it illegal, and many schools have stopped doing it, your private scholarships could fall victim to the practice of “displacement,” in which students’ institutional aid packages are reduced when they earn outside scholarships. Here’s what you need to know (and what you need to ask).

Some Scholarship Funds Can Be Taxed: It’s rare, but in certain cases, scholarship and emergency grant funds can be treated as taxable income. This infographic can help you and your family avoid an expensive surprise at tax time.

Making The Most of Your Downtime

Fitness Resources (for Free): Staying active doesn’t have to drain your bank account! Blogger Casey the College Celiac has a roundup of 13 excellent free fitness resources that college students can take advantage of.

Explore the Art World From Your Laptop: Want to get a little culture in between scrolling TikTok and hanging with your roommates? Google Arts & Culture started their free virtual museum collection to help people explore during the pandemic, and you can use it to check out everything from the Uffizi to the Met.

Get Involved in Campus Activities: Whether it’s a sport, a club, a game night or a volunteer trip, there are a million ways to stay involved and meet others. The linked guide has 100 activity ideas to organize, and your school’s office of student life or campus activities can point you to your people!

It’s a big deal to embark on your higher-ed journey, whether you’re a high school senior ready to move to your dream college, or a single parent looking to earn a new certification. These resources can help you navigate the tough questions and thrive on the way.

Forging a Unique Path: Dream Award Scholar Jake Neill

By Pam Carlson

At age 14, Jake Neill’s life was changed forever.

Jake noticed that a girl in his class was isolating herself and seemed lonely. “I just knew something was off – she needed help,” Jake said. He reached out to her and took time to listen to her about her feelings. Then, one day she came to school and Jake noticed cuts on her arms.

“I didn’t know what to do,” Jake said. He went to the school counselor and asked for help. She guided him through it.

“Having this discussion was difficult. I was only 14!” Jake said. “I told her, ‘I see you are struggling, you don’t have to walk alone. You deserve to be happy.’ Through that, she got the help she needed. That happened six years ago and her mental health is a lot better now – not perfect, but I’m not worried about her trying to kill herself.”

When a second friend expressed similar thoughts, Jake again connected her with help—and the experience of almost losing two friends to suicide inspired him to begin researching the psychological challenges teens face.

As a student at Health Careers High School, a magnet school in San Antonio for students interested in pursuing careers in health professions, Jake had unique opportunities to pursue his new calling. As a sophomore, he was matched with a mentor from the University of Texas Long School of Medicine, who  invited him to work with him on a project researching teen mental health.

Jake learned about writing grant proposals to support the research, and the team received a $5,000 grant. He also played a key role in crafting research questions to get authentic data. It was one of the first times that research questions were developed by teens for teens.

The field took notice of the research project. Jake and his mentor were invited to speak at the American Psychiatric Association Conference in 2020; at the American-Canadian Academy of Child and Adolescent Psychiatry Conference in 2022; and at the Society for the Study of Psychiatry and Culture Conference in 2022.

“We just got word that our work will be published in a medical journal too,” he said.

While Jake was taking steps toward his future career, he also faced significant responsibilities at home. His parents got divorced during his freshman year, and Jake took on a big role in helping with his two younger brothers and sister. He often made dinner and helped his siblings with their homework.

“Mom had been a stay-at-home mom,” Jake said. “It was a big adjustment.”

Then his mother lost her teaching position. Jake worked long shifts to help supplement her loss of income, working as a certified pharmacy technician and a medication technician at an assisted living facility.

“The older population are my people,” he says. “I have a very old soul. Honestly, I get along better with them than my own people. They improve my life so much.”’

“I am a relatively anxious person,” Jake went on. “While I struggle with anxiety, it doesn’t stop me from moving forward. There was no money for therapy, so I just went to the school counselor for someone to talk to. I had the mentality that I needed to hold the family together, to the extent I was burning out.”

Receiving the Scholarship America Dream Award has “granted me the privilege of focusing on my academics instead of working so much,” Jake—a 4.0 student at Abilene Christian University— said. “I have the grades, I have the determination and I have the commitment. With this generous award, my goals are made more attainable.”

Now a junior at Abilene Christian University, Jake’s interests have broadened. He took an architecture class and realized he really wanted a career that combined hands-on work with research. A college counselor encouraged him to shadow a dentist.

“I could never have predicted that I would be interested in dentistry,” he said, noting it brings together all his interests – psychology in terms of alleviating dental anxiety, the artistic and technical hands on-work of dental surgery, and helping people, while leaving time for family life.

“My journey has not been linear. I would never had made it to dentistry if I didn’t follow a twisty path. It’s ok to change your mind.”

“Worrying doesn’t add another day to your life, today has enough worry in itself,” Jake said, paraphrasing the Bible verses Luke 12:25-26. And his advice to his younger self? “Jake, chill!”

Wait, What? Scholarships Are Taxable?

By Matt Konrad

Updated February 2024

Everyone knows what a scholarship is. It’s free, no-strings-attached money to help a student pay for their higher education.

Right?

Usually. But not always.

In some cases, there are significant strings attached—including a few situations in which scholarship funds may be treated as taxable income. While it’s unusual, it’s also important for both students and scholarship providers to know how this can happen, and how it can be avoided.

A (Very) Brief History of The Tax Treatment of Scholarships

The tax status of scholarships was first codified in 1954, and until 1980 it was exceedingly simple: for students pursuing a degree, all scholarships, fellowships and grants were tax-free, no matter what the funding was used for.

The first major change to this system came in 1980, when the Tax Treatment Extension Act was passed. This amendment to the tax code specified that scholarships, grants or fellowships could be taxed if they could be considered “fees for services.” In IRS terms, that means “[money] received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant.” Exceptions were later added for teaching and research assistantships and for certain federal student aid programs, but this represented the first time any income related to scholarships was regarded as taxable.

The 1986 Tax Reform Act added significantly more potential taxation to scholarship and grant funds. For the first time, the new law specified that portions of scholarship aid used for living, travel or research expenses would be treated as taxable income. While later amendments eased some of the tax burden (especially for graduate student teachers), this law remains on the books today—meaning that stipends or cash payments received for non-tuition expenses will be considered taxable. (These payments should be accompanied by a 1099 tax form, making it easier to include them in your taxable income calculations.)

Finally, current law also states that scholarships for non-degree-candidates are taxable. As professional certifications and certificate programs become more popular—and even vital, to industries like software development and engineering—those laws put more and more nontraditional students at risk of a heavy tax burden from scholarships.

The Hidden Cost of Taxing Scholarships

As outlined by financial aid expert Mark Kantrowitz in this whitepaper for the National Scholarship Providers Association (NSPA), “There are several harmful consequences of the government taxation of scholarships, grants and fellowships.The harmful impact affects the ability of students to complete their education and graduate.Taxing financial aid prevents students from making full use of their scholarships, fellowships and grants.Scholarships, fellowships and grants are the only form of generosity that is taxed by the federal government.”

Those consequences are most stark for the student: when more of their scholarship funds go to taxes, they have less available to pay for their education. Making matters worse, most federal financial aid calculations are based on the pre-tax value of the scholarship, meaning they risk a shortfall in aid when they can least afford it.

There are also powerful drawbacks for scholarship providers. As Kantrowitz says, “Private scholarship providers are reluctant to create new scholarship and fellowship programs and to expand existing programs because taxation makes the programs less effective than other charitable purposes.” In addition, while innovative scholarship funders may want to help students with the onerous costs of rent, board and transportation, the taxable nature of these funds blunts their impact.

The impact is especially disproportionate on low-income students. Those from the bottom income quartile spend, by far, the largest percentage of family income on higher education; almost half of that money is spent on the non-tuition costs for which scholarship awards are taxable. (Under current law, emergency financial grants could also be considered taxable income—and those grants are most vital for low-income students.)

Those attempting to save money by attending two-year colleges are also likely to be hit hard. According to The College Board, living expenses for students at community colleges can make up more than 70 percent of the cost to attend. Taxing scholarships that are used for those expenses adds a huge burden to those who can least afford it, even if they’re attending school on a full-ride scholarship or in a tuition-free state.

Restoring Scholarships’ Tax-Free Status

While taxing scholarship funds may increase government revenue in the short term, it is also short-sighted. As Kantrowitz explains, “Scholarships, grants and fellowships help students graduate from college. The federal government benefits financially from the increased federal income tax revenue attributable to higher educational attainment. So, it is in the federal government’s best financial interest to stop displacing scholarships, grants and fellowships through taxation.”

Scholarship America and analyst Mark Kantrowitz have made these four recommendations for doing so:

• Clarify that tax-free status applies to students pursuing a certificate, not just a degree
• Clarify that tax-free status applies to grants, scholarships, fellowships and tuition waivers, as well as teaching assistantships and research assistantships
• Replace the definition of “qualified tuition and related expenses” with a definition of “qualified higher education expenses,” defined in relation to total cost of attendance
• Limit tax-free status to regular students enrolled at postsecondary institutions that are eligible for Title IV federal student aid

These four steps will ensure that new forms of certification and new models of payment aren’t punished for being “nontraditional.” They will also ensure qualified scholarships are available to pay for the full cost of education at eligible colleges and universities—and that will allow scholarships to be used, tax-free, to pay for room and board, transportation to and from college, and disability- and other college-related expenses.

As we work toward this goal, it’s important for all education stakeholders to clarify the current situation, and to support financial aid innovation and student support.

This post is based on research originally presented at the National Scholarship Providers’ Association Conference by Mark Kantrowitz of SavingForCollege.com and Despina Costopolous Emerson of Scholarship America. This post was updated Feb. 19, 2024 to reflect new statistics about living expenses.

How Emergency Grants Help College Students Facing Homelessness and Hunger

By Matt Konrad

Updated February 2024

The doors of higher education have never been open to more people. But it’s increasingly clear that many of those students are struggling to meet their own basic needs even as they work to change their lives with a degree or certificate.

As reported by the NSPA Programs Blog, the 2023 National Postsecondary Student Aid Study discovered that “22.6% of undergraduate students and 12.2% of graduate students are food insecure, and 8% of undergraduate students and 4.6% of graduate students experience homelessness. These rates were even higher at Historically Black Colleges and Universities (HBCUs) and Tribal Colleges and Universities (TCUs), as well as for-profit institutions.” Inside Higher Ed also reported that both food and housing insecurity are greatest among Black and Hispanic students, students who are parents and those who received Pell Grants.

This was the first time NPSAS respondents had been asked about basic needs insecurity, and the findings corroborated the years of research into the issue done by Temple University’s Hope Center for College, Community and Justice. The Hope Center’s annual #RealCollege Survey, focused largely on community colleges, found the same thing year after year, as reported via Inside Higher Ed: college students face higher rates of food and housing insecurity than the general population.

“The really big reason this is so important is these are experiences that are affecting millions of students and have been, I firmly believe, for the whole time,” Hope Center founder Sara Goldrick-Rab told IHE.

For students who are already in a precarious financial position, a single unexpected financial setback can be devastating. A sudden medical expense, rent increase or car repair can derail their path to a degree—and, once a student leaves school, getting back becomes exponentially more unlikely, no matter how much they might benefit in the long term.

So what can we do to help?

Expanding Access to Support Structures

With 70% of full-time college students juggling work and school, and college costs (including room and board) continuing to increase, the scramble to make ends meet often leaves students without the free time or energy to look for help. After a full-time work week and a full credit load of classes, fueled by little sleep and a fast-food diet, the complex realms of financial aid and student advising can seem inaccessible and overwhelming. If they do manage to seek help, many are shut out from financial aid due to bad credit or lack of a co-signer—making their attempts to break out of poverty via education that much more difficult.

In order to assist homeless and hungry students, it’s vital for campus, state and national programs to work on meeting them where they are, and provide aid when they need it most.

As Brookdale Community College’s Matt Reed put it in Inside Higher Ed, that’s often easier said than done: “Many of our basic operations are predicated on the assumptions that students are well-prepared, live at home with families that support them economically, have reliable cars, don’t work many hours for pay, know what they want, and can devote themselves full-time to their studies if they’d just buckle down. … But those aren’t most of our students. That doesn’t make our students defective. It means we need to be willing to rethink some of our basic assumptions.”

Fortunately, more and more colleges are doing the work to discover these gaps in students’ basic needs, and taking steps to meet them.

NSPA highlights a few of the “numerous community- and institution-based programs already in existence. These include businesses and nonprofits like Rent College Pads, which works with local landlords to list available housing options for students and Swipe Out Hunger, which allows students to donate food swipes at their dining hall and engages in national advocacy efforts focused on student hunger on campus.”

Programs like Single Stop, which currently operates at seven community colleges, offer another example of how support can work efficiently. Using a combination of online tools, organizational partnerships and in-person resources ranging from free meals to tax assistance, Single Stop provides “wrap-around” support tailored to the needs of each student.

And Single Stop isn’t the only model that provides these kind of wrap-around services. Many campuses have their own independent offices, and the National Association for the Education of Homeless Children and Youth (NAEHCY) also provides help and resources for students, families and admissions officers. Whatever the platform, though, the idea remains the same: getting time- and money-crunched students the right support at the right time.

Providing an Emergency Grant Safety Net

In conjunction with these services to keep students learning, emergency grants from both colleges and private-sector funders can play a vital role.

The concept behind emergency grants is simple: when students incur an unexpected expense that threatens their ability to stay in school, they can apply for a small ($1,000 or less), one-time grant to help pay the bill and keep them afloat.

Over the last two decades, Scholarship America has partnered with colleges and private-sector funders to provide these kinds of grants. And while the average grant amount of $741 may not seem like a life-changing dollar amount, it can be a lifeline for those facing tough choices—95% of Scholarship America emergency grant recipients complete the term they are enrolled in and 88% enroll the next term.

Emergency grant programs have the benefit of flexibility in the face of crisis. At the beginning of 2020, we partnered with Achieve Atlanta to pilot a community-focused emergency grant program. Our initial launch awarded 23 students with almost $10,000 in emergency grants. But when COVID-19 struck, the program suddenly had to grow.

With campus closures across the country, students were forced back home; many lost their jobs. The urgent needs of Achieve Atlanta Scholars were growing and changing daily; Achieve Atlanta immediately responded by making emergency funds available to a larger group of students and securing additional funding, to increase the available funds from $25,000 to $170,000. Through our efficient distribution system, students are getting the funds they need when they need them, giving them one less thing to worry about.

Grants can also be targeted to those whose needs might be overlooked. For example, Scholarship America administers the Wells Fargo Veterans Emergency Grant Program, which provides one-time grants up to $1,000 for veterans in college or vocational school who encounter undue financial hardship.

Best Practices For Supporting Students in Need

Whether it’s wraparound support or emergency grants, there are a few guidelines to follow to ensure students are getting the most support with the least friction. Our work in the emergency aid sector has shown these best practices:

• Eligibility guidelines should be clear, broad and easily accessed from any device, even by those with little experience in the financial aid system.
• Funds should be used for non-recurring, unexpected living expenses, not tuition or fees. (This ensures they won’t have a negative impact on other financial aid calculations.)
• Speed matters: students applying for emergency grants typically need money as quickly as possible, meaning simple applications, fast turnaround and efficient disbursement are crucial.
• Small amounts make a difference. Just $500 can mean the difference between a degree and dropping out.

As we begin to understand more about the struggles many students face with homelessness, food insecurity and school/work balance, we can continue to evolve and innovate our supports. What we know is that emergency grants can make a big difference—and that they work best when they’re a component of a comprehensive support system that includes food pantries, housing assistance, vouchers and financial guidance/mentorship.

With the right safety nets in place, students have the ability to keep working toward their educational goals, ultimately helping to secure a better future for themselves and their families.