Private Scholarships: Exposing the Truth About Them

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In the early 1970s, the U.S. auto industry received warnings from economic experts: If they continued to focus on the wrong thing, Japanese car companies would soon put them out of business. The “Detroit Three” automakers — General Motors, Ford and Chrysler — were told that if they continued to produce oversized, inefficient American-style models, they would soon be surpassed by compact, fuel-efficient Japanese cars if the price of gasoline were to increase drastically.

U.S. auto executives laughed off these dire warnings and continued with business as usual. Over the course of the decade, the price of oil skyrocketed due to a changing atmosphere in the Middle East, and the American car companies crumbled. If you’ve ever seen Eminem’s movie “8 Mile” or an episode of “Hardcore Pawn,” you have an idea of how things turned out in the Motor City.

It’s easy to become fixated on details that are new, shiny and fun (like a ’72 Corvette) and ignore others that are counter to our belief system. Such is the case with how prospective college students and their families seek financial aid. For whatever reason, students and parents alike spend an inordinate amount of time seeking out private scholarships from employers, nonprofits and local organizations, and not enough time focusing on where the bulk of aid money actually comes from.

Surprising Numbers

During the 2014-15 academic year, roughly $184 billion in student aid was awarded to undergrads. According to the College Board’s Trends in Student Aid publication, the overwhelming majority of student aid comes from the federal government, representing 66 percent of all aid awarded. Institutional aid from colleges and universities represents 22 percent, and state governments give 5 percent of total aid. A mere 6 percent comes from employer and private scholarships, a number that doesn’t quite support all of the hype.

Unclaimed Money

Many people mistakenly believe that the majority of aid comes in the form of private scholarships, so they spend precious time scouring through scholarship websites, books and other sources looking for what amounts to only a fraction of the total aid awarded. Their hunt is fueled each year by hearing that millions of dollars in scholarships go unused. While there is some truth to that statement, the fact also remains that many of those scholarships are inaccessible because the qualifying requirements are so limiting. For example, there may be a scholarship at a regional university specifically aimed at a student from a particular county who has a high school GPA of 3.5 or higher and is majoring in interior design. If no incoming student meets these criteria, the scholarship may go unclaimed.

Effect on Financial Aid Packages

It’s important to note that since the federal government requires colleges to consider private scholarships when calculating financial aid, those outside scholarships can actually reduce your total aid package. Let’s say, for example, that a family’s expected family contribution is $17,000 and the cost of tuition is $30,000. In order to meet this cost, the college offers $13,000 in aid to assist the family. Now let’s say that the student wins a $3,000 scholarship from a local employer. In this instance, most schools would then reduce their respective financial aid offers by $3,000. Hopefully, these reductions target loan awards, rather than grant awards, although that isn’t always the case at every school. All in all, private scholarships have very little impact on the “bottom line” for students requiring need-based aid, since scholarships often lead to a reduction in their original financial aid award. For affluent students who do not require aid, however, scholarships will undoubtedly impact out-of-pocket costs by reducing the amount they owe.

By no means do we want to discourage you from applying for private scholarships; we just encourage you to avoid dedicating an excessive amount of time to these pursuits.

Dave Bergman, Ed.D., is a co-founder of College Transitions, a team of college planning experts committed to guiding families through the college admissions process. Learn more at collegetransitions.com.