The Perfect Disguise: Institutional Policies vs. Federal Regulation: Know the Difference!

Overview:

Financial aid departments nationwide have disguised their self-made outside scholarship policies to displace students' scholarships as federal over-award regulation. This week’s newsletter will discuss the difference between institutional policies and the federal overaward regulation. 

What is scholarship award displacement?

Scholarship award displacement is one of the root causes contributing to the student loan debt crisis. Need-based recipients cannot use their private scholarship funds to fund their gap after federal, state, and institutional aid, as intended by private scholarship donors, causing many students to borrow more or drop out of college.

Scholarship award displacement is when one form of student financial aid (i.e., a private scholarship, external scholarship, or outside scholarship) replaces another form of student financial aid (for example, an institutional scholarship or institutional grant). The private scholarship can also impact a student's federal loan or work-study package, depending on the higher institution's private scholarship policy. Each higher institution has its own private scholarship policy. Scholarship award displacement impacts need-based recipients.

The Perfect Disguise: Institutional Policies vs. Federal Regulation

A common misconception we have heard so many times is that scholarship award displacement when it comes to reducing institutional scholarships and grants after receipt of an outside scholarship is a federal regulation. I was told this when I became a victim of scholarship award displacement in 2019. Well, the truth is, it is not a federal regulation.

The federal overaward regulation only requires higher institutions to reduce student loans if a student’s financial aid exceeds the cost of attendance. It is institutional policies that require reducing institutional scholarships/grants rather than student loans. Our research showed us that many higher institutions are reducing institutional scholarships/grants, even when a student’s financial aid package is not considered overawarded under federal regulations. Some institutions have also created their own overaward regulations disguising them as federal regulations. 

I have provided one real-life example of how a higher institution's financial aid department disguises its outside scholarship policy as a federal policy.

Example 1 

“When you receive an outside scholarship, our office is required to reevaluate your financial aid package and account for the additional resource. Keep in mind that federal regulations stipulate that an outside scholarship cannot be used to reduce your parent contribution. Receipt of these funds will result in dollar for dollar reduction in University Scholarships.” 

State Laws 

Five states have outlawed the practice. All of the state laws are different. New Jersey is the first state to introduce an amendment bill to extend its ban on scholarship displacement. You can learn more about the state laws here. 

What’s next? 

Our organization has met with the U.S. Department of Education twice about scholarship displacement. We hope the U.S. Department of Education will act quickly. The purpose of scholarships is to supplement federal, state, and institutional aid, not supplant the aid. The fight to dismantle scholarship award displacement continues. 

Media Appearance

Tonight at 7 pm, I will be speaking about scholarship displacement on C3 w/Dr. B. The interview will be live on Facebook!

News Article

Last week, our organization’s work to dismantle scholarship displacement was featured in WHYY.

Conclusion

Thank you to the 350+ people who have subscribed to my newsletter thus far. Feel free to reach out with any questions. To learn more about our DISSCHOLARED™ resources, database, events, and volunteer opportunities, visit www.disscholared.org. If you need assistance navigating the practice of scholarship award displacement, please visit www.disscholared.org/consulting.