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Timothy Peck
5 Scholarships

What is Scholarship Displacement? How to Avoid it

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From composing essays to crafting resumes to collecting letters of recommendation, applying for and winning private scholarships is a lot of work. Scholarship displacement makes all that effort for naught, as the private award supplants other forms of financial aid and leaves students in essentially the same financial position. 


Scholarship displacement is bad for both students and scholarship providers—students don’t get the financial benefit of earning an award and the support of scholarship providers is nullified. Here’s what you need to know about scholarship displacement, and what you can do to avoid it.


What is Scholarship Displacement?


At its most basic, scholarship displacement is when winning private scholarships results in a reduction of other forms of financial aid. First and foremost, this negates the advantage of winning an award. Another complaint about scholarship displacement is that it most often affects institutional grants, which don’t require repayment, rather than reducing student loans or work-study obligations. 


While scholarship displacement is under the radar of many college-bound students, the practice is widespread in higher education. A survey from Student Beans, a student loyalty network, found that 50% of U.S. college students who receive private scholarships experience scholarship displacement. Respondents to the survey also reported that institutional grants are the most common form of financial aid to be reduced (62%). 


Student Beans’ stats align with a 2013 survey taken by the National Scholarship Providers Association (NSPA), which found that half of the 61 schools surveyed reduced institutional grants and scholarships when a student reported receiving a private scholarship. The same survey found that winning a private scholarship increased the overall cost of attendance at one-third of the surveyed schools. Making matters worse, 40% of NSPA survey respondents adjust students’ financial aid packages for future academic years on the assumption the award will be renewed.


There is no question that scholarship displacement is consuming a considerable amount of private scholarships—consider that a 2015 Baltimore Sun article reported that 60% of Dell Scholars (which, between 2004 and the time the article was published, had awarded $49 million to students) were impacted by scholarship displacement. 


Why Does Scholarship Displacement Happen?


The reason many colleges give for the practice of scholarship displacement is the need to reallocate institutional aid to those who need it the most. Put simply, it frees up funds for students who didn’t apply for, or win, private scholarships. The counterpoint to this argument is that if scholarship providers wanted to support a college’s students they could do so; rather, they’ve chosen a particular student to support.


Is Scholarship Displacement Legal?


Scholarship displacement is legal in most states. However, in recent years some states have started cracking down on the practice. Currently, five states have legislation either banning or regulating scholarship displacement. 


  • Maryland became the first state to ban scholarship displacement in 2017, passing legislation restricting the practice unless a student’s scholarship winnings and financial aid package exceed the cost of attendance or the scholarship provider gives permission. 
  • New Jersey joined Maryland in banning scholarship displacement. In 2021, the state passed a law that limits its practice—it can now only occur if a student’s private awards and financial aid exceed their financial need, the scholarship provider gives permission to displace other forms of financial aid, or to comply with the financial restrictions of an athletic organization. 
  • California prohibited the practice of scholarship displacement for low-income students in 2022. Students who qualify for the Pell Grant, or for state financial aid under the California Dream Act, are no longer subjected to the practice.
  • Pennsylvania also passed laws prohibiting scholarship displacement in 2022. The state now forbids the practice with the exception of when a student’s private scholarships and financial aid are more than the cost of attendance or when an athletic association restricts financial aid for student athletes.  
  • Washington is the latest state to pass laws restricting scholarship displacement. Students who receive private scholarships are now ensured to have 100% of their unmet needs met before state, institutional, or federal aid is reduced. 


Scholarship displacement is also gaining attention on a federal level. The Helping Students Plan for College Act is a bipartisan bill that would increase the transparency of schools’ scholarship displacement policies by requiring them to disclose them to both prospective and enrolled students. While less restrictive than the state legislation currently passed, the bill is a great first step to help students avoid being caught unaware by scholarship displacement practices. 


How to Avoid Scholarship Displacement as a Student


While lawmakers on both the federal and state level look for solutions to scholarship displacement, there are some steps students can take to keep it from becoming an issue.


Check the Policies of Prospective Schools Before Applying

Students who are actively seeking private scholarships will want to research the scholarship policies of the colleges on their lists, particularly how funds provided by private scholarships will impact the amount of institutional aid they receive. The 2013 NSPA survey found that 90% of the institutions surveyed provide their outside scholarship policies on their websites, but in some cases, you may have to call and speak with someone in the financial aid office to get an answer. 


Students will also want to inquire how the colleges that reduce financial aid packages make their cuts. After all, there is a big difference first applying private scholarship dollars to reducing student loans or work-study versus deducting from institutional grants which don’t require repayment.    


Apply to Schools That Meet 100% Demonstrated Need


Some colleges and universities guarantee to meet all of the financial needs of their applicants, with some even promising to do so without the use of loans. In many cases, the generosity of these colleges’ financial aid packages, especially no-loan schools, significantly reduces the impact private scholarships have on a student’s ability to pay for college. If you’re accepted to these schools, you may not even need to apply for private scholarships.


Apply to Full-ride Scholarship Schools


High-achieving students will also want to consider applying to schools that offer full-ride scholarships since they eliminate the need for private scholarships. Some of these scholarships are automatically awarded based on SAT/ACT scores


Full-ride scholarships—which cover all the costs of attendance including tuition, housing, meals, transportation, and books—are often used to lure top applicants to schools they might not have previously considered and are extremely competitive. Only about 0.1% of students receive full-ride scholarships. Slightly more common, but still extremely rare, are full-tuition scholarships; just 1.5% of students receive these awards which, as their name implies, cover the tuition of a school, but none of the other expenses associated with attending college. 


Where to Get Help Navigating College Finances


CollegeVine can help you better understand and find solutions to the numerous hurdles students encounter when trying to pay for college. Our free Paying for College forum is a great resource for learning how to keep college affordable from both experts and students. Join the conversation and take a step toward controlling your college costs.

Short Bio
A graduate of Northeastern University with a degree in English, Tim Peck currently lives in Concord, New Hampshire, where he balances a freelance writing career with the needs of his two Australian Shepherds to play outside.