Imagine this, you just won an outside scholarship and you’re over the moon. Although you already receive financial aid, you could really use the extra money to pay for college.

“I’m glad all of my hard work paid off,” you think to yourself.

Now imagine your school stealing a portion of your financial aid money while you’re distracted with the pretty penny you just won.

That is scholarship displacement in a nutshell.

What is scholarship displacement?

Scholarship displacement is the practice of reducing your financial aid package to offset the scholarship amount you won so that your net gain becomes zero.

This means if your financial aid package is worth $30,000 and you won a $10,000 scholarship, your school would reduce your financial aid by that amount so you’re still at the same number. 

In this example, your net gain would be zero because your would-be extra $10,000 is negated by the $10,000 deduction you would face. It would be as if you didn’t win a scholarship in the first place.

Seems unfair right? It probably feels like you’re being punished for working hard.

Unfortunately, this practice occurs because colleges are barred from offering financial aid that exceeds the total cost of attendance otherwise they risk losing their funding (which hurts every student).

On the bright side, scholarship displacement isn’t necessarily a bad thing and could actually be used to improve your financial situation in some cases.

Your college could displace aid in one of three ways:

1. Reduce loans and work-study first.
2. Reduce grants and institutional scholarships first.
3. Reduce all forms of financial aid equally.

The first option would be the best-case scenario because your federal loans and work-study must be completely replaced with outside scholarships before ever touching your grants or institutional scholarships.

The second option would be the worst-case scenario because you would lose “free money” while your existing loans would remain intact. Consider whether applying for scholarships this year is the best option for you.

Related: When You Should Not Apply For Scholarships

The third option would be a less-than-ideal scenario because the composition of your financial aid would relatively be the same, but at least the impact of displacement is evenly distributed across your aid.

How can I minimize scholarship displacement?

Fortunately, there are many things you can do before, when, and after you apply for outside scholarships to maximize the amount of money you can keep when you do win.

Overview:

1. Consider your college’s scholarship displacement policy.
2. Meet with an administrator in the financial aid office to create a battle plan.
3. Reach out to the scholarship provider and ask about its payment plan.
4. Update both the financial aid office and scholarship provider on any new developments.
5. Reach out to the financial aid office to discuss whether it’s time to initiate the plan you both made in the beginning.
6. Reach out to the scholarship provider to determine the best course of action for you.

Before you apply

You have to be proactive in covering your bases before you start applying for private scholarships. 

Doing so will help you make good, well-informed decisions and avoid being blindsided by unnecessary problems in the future.

If you currently receive financial aid, the first thing you should do is consider your college’s scholarship displacement policy because it will help gauge whether you should apply for scholarships in the first place.

Related: Any Time Is A Great Time To Apply For Scholarships!

The last thing you want is to spend a significant amount of time and effort only to have it displace your grants and institutional scholarships (free money).

However, even if your college does have an unfavorable policy, it is still possible for you to apply for outside scholarships and keep that money. 

Use this time to meet with an administrator in the financial aid office to create a battle plan. Oftentimes, students are able to create a personalized plan that allows them to apply for and keep the scholarships they win.

These are three options you can explore with the financial aid office:

1. Ask if your federal loans and work-study could be reduced first regardless of its policy.
2. Ask if you could use scholarships to cover any unmet need.
3. Ask if you could increase your tuition to create unmet need (then use scholarships to fill that gap).

It never hurts to ask if your college could make an exception for you by reducing your loans and work-study first, assuming it’s against standard policy. 

The worst they can say to you is “no” while the best-case scenario is you being able to save thousands of dollars in grants and institutional scholarships.

Outside scholarships can also be used to cover unmet need, which is the gap between your financial aid package and the cost of attendance, without requiring displacement so ask if this is a possibility for you.

If you don’t already have unmet need, you can ask your college to increase your cost of attendance to create this gap so you can fill it with private scholarships.

It is also a good idea to reach out to the scholarship provider to ask about its payment plan and whether it has flexible options.

Here are questions you should ask the scholarship provider:

• “Do scholarship recipients have the option to defer award payments to a later year or until after they graduate college?”
• “If the scholarship is only paid once, do I have the option to break it up into multiple, yearly payments?”

When you defer your payment or break it up into multiple installments, you can eliminate scholarship displacement or at least minimize its impact.

Key takeaway: The goal of this stage is to gather as much information as you can to determine your options and whether you should apply for outside scholarships this year.

When you apply

Once you finish gathering the information you need, you’re now ready to apply for scholarships.

Depending on your school’s policy on scholarship displacement, you may be able to use it to your advantage.

Specifically, if your college reduces federal loans and work-study first, it is a good strategy to apply for scholarships until you completely replace them. This makes it possible to graduate debt-free since you wouldn’t have any loans in the first place!

For example, if you were awarded $25,000 in grants/institutional scholarships and $5,000 in federal loans/work-study, your goal should be to win $5,000 in scholarships (nothing more, nothing less).

Related: 25 Strategies I Used to Win Over $55,000 in Scholarships (And So Can You!)

Related: 19 Red Flags to Look Out for When Applying to Scholarships

Related: A Complete Guide To Financial Aid: Everything You Need To Know About Your Financial Aid Package

Related: Here Are The 7 Best Scholarship Databases (no registration needed)! 

On the other hand, if your college reduces grants and institutional scholarships first or equally, you could focus on fully replacing your financial aid package through multiple or full-ride scholarships.

Note: Keyword is “could” not should. Every student will vary in their financial situation, available resources, and level of risk tolerance so choose wisely.

It is important to note that substituting 100% of your financial aid package through scholarships alone is very risky and difficult to do so consider your options carefully.

Key takeaway: The goal of this stage is to apply for scholarships optimally while taking into account your college’s scholarship displacement policy.

After you apply

After you submit your application, you’re still not off the hook.

You need to update both the financial aid office and scholarship provider on any new developments that may affect your receipt of the scholarship.

This includes reporting scholarships you have won to the financial aid office or relaying college requirements and policies to the scholarship provider. 

It is so important to continue engaging with both parties so they know your status at all times and can plan accordingly when issues occur. They both want you to keep your scholarships but you have to help them help you.

Reach out to the financial aid office to discuss whether it’s time to initiate the plan you both made in the beginning (e.g., increase tuition).

You should also reach out to the scholarship provider to determine the best course of action to maximize how much you can keep while abiding by your college’s policy.

This plan may include (1) deferring your award payments to a later year/after you graduate or (2) breaking it up into multiple yearly payments.

Key takeaway: The goal of this stage is to remain an active participant in the scholarship application process, which means coordinating between the financial aid office and the scholarship provider to ensure all requirements are met.

Concluding Remarks

Scholarship displacement can be tricky to work with and is often experienced with a sense of dread. However, it could also be used to improve your financial situation if you leverage it correctly.

For the most part, issues you may face relating to receiving a scholarship can be resolved by coordinating with your (1) financial aid office or (2) scholarship provider.

Although you technically only need one of them to resolve this issue, having the cooperation of both is ideal since everyone will be on the same page, which will make your life a lot easier.

Finally, it never hurts to ask for an exception. Most of the time, the rules your college or scholarship provider implements are not hard rules and will consider extenuating circumstances.

Remember that your college and scholarship provider have your best interest in mind and will often work with you to find the best course of action.