What is Scholarship Displacement? This can occur when a student receives an outside or private scholarship, which then leads to a reduction in other forms of aid. It is practiced by colleges and universities across the country.
When a student receives a scholarship from a provider other than the school, they are required to report it. This oftentimes results in a reduction of funds from their financial aid package, such as loans or grants.
Colleges claim that this is done to free up more funds for students requiring financial aid who may not have received any other outside help. However, there are plenty of critics to the practice who believe this is not fair.
In some instances, students are seeing negative impacts to their financial aid package because of an outside scholarship, even when they still have unmet need. This leaves many students to wonder if applying for scholarships and winning is even worth it – if in the end they’ll be penalized.
Several states have responded to student and parent frustration as well as to critics’ calls to end scholarship displacement, outlawing the practice or requiring greater transparency into displacement stipulations.
States Against Scholarship Displacement
Recently, California became the fifth state to ban scholarship displacement, joining ranks with Maryland, New Jersey, Pennsylvania, and Washington.
California Scholarship Displacement
In late 2022, California banned the practice of scholarship displacement for a specific set of students. Low-income students, who qualify for the Pell Grant or for state financial aid under the California Dream Act, will no longer experience this practice.
Maryland Scholarship Displacement
Maryland was the first state to enact laws against scholarship displacement. Since 2017, it has been unlawful for colleges and universities to implement the practice, unless a student’s private scholarship winnings and aid package exceed the cost of attendance or with permission from the scholarship provider.
New Jersey Scholarship Displacement
In 2021, New Jersey’s state legislature passed a bill that would eliminate scholarship displacement in certain circumstances. It can now only occur under the following scenarios:
- If outside scholarships and financial aid exceed a student’s financial need.
- The scholarship provider gives permission to displace merit or financial aid.
- There are financial restrictions in place due to affiliation with an athletic organization.
Pennsylvania Scholarship Displacement
Like California, Pennsylvania enacted laws to prevent award displacement for students in 2022. The new law only allows colleges and universities to displace funds for a student if their outside scholarships and financial aid surpass their financial need, or if their involvement on an athletic team comes with financial restrictions.
Washington Scholarship Displacement
Finally, Washington approved a law against scholarship displacement early in 2022. Before displacement takes place, colleges and universities must ensure that 100% of a student’s needs are met before their financial and merit aid is affected by winning outside scholarships.
Calls for Federal Laws Against Scholarship Displacement
As more states pass laws to prevent the act of scholarship displacement, the issue is receiving national attention. In fact, Democrat and Republican representatives in Congress have come together to draft legislation that would make scholarship displacement policies more transparent.
If passed, the Helping Students Plan for College Act of 2021 would require colleges and universities to disclose scholarship displacement practices to prospective and currently enrolled students, detailing how and which parts of aid packages would be withheld if students won outside scholarships.
The legislation also includes a call for the U.S. Government Accountability Office to conduct a survey on the effects of scholarship displacement, which would help inform further legislative action to protect students and prevent penalizations for seeking outside scholarships to help pay for school.
As students search for colleges and meet with admissions and financial aid officers, it is imperative to ask about scholarship displacement practices. Knowing these policies in advance can help students better strategize for their outside scholarship search as well as their financial aid applications.