Watch out for Scholarship Displacement: How winning scholarships could possibly lower your financial aid offer.    

  • Imagine you’ve gone through the hard work of finding, applying, and finally winning a scholarship.  Although this exciting win is considered a good thing in most cases, students may be surprised and disappointed to learn that colleges can potentially reduce their financial aid as a result of their scholarship winnings. 
  • This practice is called “scholarship displacement” and also has been referred to as the “Catch-22” of applying for private scholarships. 
  • According to a 2021 survey study discussed in Forbes, 50 percent of students who received outside scholarships were given a revised financial aid package with a whopping 62 percent of those students receiving a decrease to their initial grant award.
  • With its potential to be a large impact on students, this practice has sparked controversy.   Participating colleges see displacement as an opportunity to spread funds and increase college affordability for more students.  However, scholarship recipients see it as an unfair penalty that diminishes their efforts and time in earning those scholarships in the first place. 
  • Scholarship displacement has caught the attention of lawmakers in Maryland after two employees from a scholarship provider fought to change Maryland’s law with House Bill 266. Since July 2017, Maryland has banned scholarship displacement at Maryland public universities.  The law states that schools can only reduce a student’s financial aid offer if their aid becomes greater than the full cost of attendance or if their scholarship provider allows the reduction (source).        
  • Regardless of one’s personal view, it’s certainly a complex issue without straightforward answers and will continue to be a sparking discussion topic between students and schools. 

How can I avoid scholarship displacement? 

If you anticipate or have won an outside scholarship, below are some important questions to ask.

  1.  Where can I find the school’s policy on private scholarships?

The school should have a policy that outlines whether private scholarships need to be reported and how those scholarships may impact your package.   

  • Does this college practice scholarship displacement? If the answer is no, you are good to go. Just make sure you document your conversation. 
  • If this college does practice scholarship displacement, what parts of my financial aid package will be specifically impacted?  Will my loans be reduced first before my grants (aka free money)? 

Loan reductions first would be the ideal situation and many colleges do follow this approach.  However, it’s not always the case (some colleges have reduced free grant and institutional aid instead of automatically deducting loans).

  • Can the scholarship provider help me with this situation?  If your aid is ultimately going to be reduced, let the provider know and see if they can help you.  For example, see if it’s possible to defer the award until after you graduate so that you can use it towards loans. 

Knowing how scholarship displacement can impact you and what questions to ask may help you better secure and maximize your offer.     

Anna Ma is a high school counselor and advisor for in the Chicago area. She is passionate about helping families find high quality and affordable post-secondary education.

Anna received her Bachelor’s Degree from the University of Illinois at Urbana-Champaign and her Master’s Degree from Northern Illinois University.  She is a licensed professional counselor (LPC) and has obtained her Professional Educator License (PEL).