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Watch out for scholarship displacement!!

Understanding scholarship displacement is crucial when planning for college. Schools may reduce their financial aid package by the amount of any outside scholarships received. While some schools reduce loans first, others might cut their own grants. Always check a school's policy before applying for outside scholarships.

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Video transcript

- One thing you should know is that colleges can actually reduce their own financial aid package on a dollar for dollar basis by the amount of any outside scholarships you receive. So for instance, if you received an outside scholarship from a private corporation, or from a private philanthropic organization, like the Soroptimist Club. This is called scholarship displacement or stacking. Now if you receive an outside scholarship, the schools will first look potentially to see if you have any unmet need that they were not able to meet in their own financial aid packages. The vast majority of schools will allow you to reduce any unmet needs you have with the outside scholarship before they reduce their own aid package. And then if there is no unmet need, most schools will first reduce the loans they're giving you before they reduce the free money, or the grants and scholarships. This is very individual to each school, however. It's great if they reduce the loan package, because that means there's less money you have to pay back, especially when the private or outside scholarship is free money. However, again, it really depends on the school, and there are still a minority of schools who will actually reduce their own grants and scholarships by the amount of the outside scholarship. So in that case, it really doesn't matter if you have a private scholarship or not, either way you're, you know you're not gonna get any more money. So an example would be, let's say a college gives you a $15,000 grant and a $15,000 loan, and you have a $10,000 outside scholarship from a private corporation. Hopefully the college would reduce the $15,000 loan package first, so all of a sudden you're only having to pay $5,000 in loans back. But it is conceivable that they will reduce their grant package by $10,000, in which case it's kind of a wash in terms of having that outside scholarship. Some aid they will never reduce, this is called first dollar aid. And an example of that would be the Pell Grant, which is going to be $57, $175 each year. In that case, the Pell Grant is a lump sum that is never reduced because the federal government really has enough money to cover that, regardless of whether you have outside scholarships or not. You are required to report all of your outside private scholarships to your university. So you really need to check with those schools first before you go spending lots of time and effort on applying for outside scholarships to see how they treat outside scholarship in determining their aid packages or in reducing their aid packages. Also realize that outside private scholarships are usually, although not always, only one year awards. So you need to make sure then that after that year in which you have that outside scholarship, your college or university realizes that you don't have it in your sophomore, junior, and senior year, and so that if they reduce the aid package when you did have the scholarship, they re-up the aid package when you don't.