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How Outside Scholarships Impact Your Financial Aid Award

There are several options for families looking to augment their college funds. Most families receive some type of financial aid to assist with shouldering the burden; this might be federal, state, or institutional aid. Some families also use loans to offset costs, and many look for private scholarships. 


It’s important to know, however, that private scholarships can impact your final financial aid amounts. Before you apply for one, be sure that you understand its ramifications completely. If you’re considering applying for an outside scholarship, read this post first. 

Also, check out our video on the 3 most common scholarship myths!

What Do We Mean By “Outside” Scholarship?


An outside scholarship is simply a scholarship that is not provided directly by your college. It might be funded by a private company, a nonprofit, an advocacy group, or another group. It usually involves a separate application submitted somewhere other than where you submitted your college applications and financial aid forms. 


Grants offered by your school and government aid are different because your financial aid package already considers these. You will see this scholarship information included in your final financial aid package. Because they are not funded by your school, outside scholarships exist separately from your school’s financial aid package. This presents a few issues that you should be aware of when considering whether to apply. 


What Happens After You Win a Private Scholarship?


After you win an outside scholarship, you must report it to your school’s financial aid office. This is because the additional money can be viewed as an asset and can increase your family’s expected contribution, which means it can also decrease your financial aid package.


Basically, if your family’s expected contribution was $20,000 and you win a $5,000 scholarship, the school may now consider you as having $5,000 extra dollars to contribute. This could increase your expected contribution to $25,000 and decrease the funds that the school had offered to help you afford the cost of attendance. 


This makes sense because most schools have limited resources to offer as financial aid. In other words, they cannot fully fund every student’s education, so they expect families to contribute what they can; this allows colleges to maximize the number of families they can help. You might think that earning an outside scholarship means you don’t have to pay as much for college, but the college might think it means that they don’t have to pay as much for you. 


The good news is that when a financial aid office adjusts your financial aid award to account for an outside scholarship, they will usually first decrease the less desirable forms of aid. Your loan amount or expected work-study contribution will usually be the first to go, leaving your institutional grants intact unless your scholarship is significant enough to impact them. 


Sometimes, for larger, well-known scholarships like the National Merit Scholarship, a college will allow you to use excess funds to help pay for expenses such as books or a laptop.

What if You Don’t Report an Outside Scholarship?


It might seem tempting to simply keep your outside scholarship without notifying your college, but this can backfire. If all the aid that you receive (including scholarships, federal aid, and institutional aid) adds up to more than $300 above your demonstrated financial need, the government actually requires your college to reduce your need-based financial aid package. 


Should you not report a private scholarship to your college, you will receive what is referred to as an “overaward.” When this happens, you are responsible for paying back the extra money, which can be a problem if you’ve already spent it. 


Is It Worth It to Apply to Private Scholarships, Then?


Outside scholarships can be a lot of work. They often require essays, separate applications, and additional letters of recommendation. This can represent a lot of juggling on your part when you’re already dealing with college applications and your senior year coursework. 


That said, outside scholarships can still be worth the hassle in certain situations. If you aren’t eligible for financial aid, private scholarships can be a great source of college funding. Since you don’t receive financial aid, they won’t have any impact on it. 


If you receive a financial aid package that consists partially of loans or work-study, outside scholarships might help to offset these, but this is not the case at every college. Some colleges offset institutional grants before offsetting loans or work-study. It’s always best to inquire at the specific colleges on your list. Ask how they factor outside scholarships into their financial aid packages before you go through the hassle of applying for these scholarships. 


Finally, outside scholarships are absolutely worth the hassle if you are able to win enough money to cover the full cost of tuition, room, and board, for the entire year. While this is a very rare occurrence and involves significant effort, it’s not impossible.


Deciding whether or not to apply for outside scholarships, and which scholarships to apply for can be a fine line to walk. You’ll need to gauge your likelihood of winning large amounts, you’ll need to anticipate how smaller awards will impact any existing aid, and you’ll need to think about how much time you have to devote to multiple scholarship applications.


Curious about your chances of acceptance to your dream school? Our free chancing engine takes into account your GPA, test scores, extracurriculars, and other data to predict your odds of acceptance at over 500 colleges across the U.S. We’ll also let you know how you stack up against other applicants and how you can improve your profile. Sign up for your free CollegeVine account today to get started!

Kate Sundquist
Senior Blogger

Short Bio
Kate Koch-Sundquist is a graduate of Pomona College where she studied sociology, psychology, and writing before going on to receive an M.Ed. from Lesley University. After a few forays into living abroad and afloat (sometimes at the same time), she now makes her home north of Boston where she works as a content writer and, with her husband, raises two young sons who both inspire her and challenge her on a daily basis.