What is Scholarship Displacement?

“Scholarship displacement is the term to describe situations where a student has received an aid package from a college, and then tells the college she has won a private scholarship. Some colleges respond to this by reducing the amount of the college award by the size of the new scholarship; that’s the displacement.”
— Inside Higher Ed
  • Award displacement jeopardizes the existence of the entire private scholarship industry — worth over $1 billion annually. 
  • This displacement policy then discourages students from ever applying for private scholarship funds. 
  • Undergrad students who graduate with no debt are twice as likely to enroll in graduate school as students who graduate with some debt. Many scholarship providers want their private scholarships to reduce the student’s loan and work burden. But when an institution displaces a private scholarship by reducing institutional grants instead of loans, there is no decrease in the student’s debt at graduation. 

Justifications and Counterarguments 

  • Some argue that federal overaward regulations (34 CFR 673.5(b), (c) and (d) are based on sections 428(a)(2)(C), 428H(c) and (d), 443(b)(4), 471 and 480(j) of the Higher Education Act of 1965.) encourage some universities to displace aid 
    • Counterpoint: Current regulations require universities to reduce a student's school based aid (containing a combination of loans, work study, and grants) when a student receives more aid than determined by  their demonstrated financial need (cost of attendance- expected family contribution). If a school reduces a student's loans in response to addressing an overaward this helps the student. However, if a school reduces a student's school based grants when a student receives a private scholarship this results in zero change in the overall costs to the student.  As universities continue to face a rise in public resentment due to rising costs, eliminating scholarship displacement is one tangible way for schools to support students and families and increasing access and affordability. While some universities are better than others in avoiding this practice, federal regulations are needed to make things uniform and accessible across the board. 
  • Some argue that scholarship displacement allows a university to better distribute financial aid funds in an equitable manner. If a student receives $1000 from a scholarship provider that is $1000 less that the school has to spend on scholarships or $1000 more that can be used for other students in need. 
    • Counterpoint: If a scholarship provider wanted to support a college's student population as a whole then they would donate funds accordingly. However, these funds are meant  to reward, support and to help reduce the cost of education for that student selected by that scholarship provider. Undermining the provider's donation by displacing the aid of the student discourages public-private collaboration and disincentives students from seeking out support .   

Policy Solutions

  1. Follow in Maryland's footsteps in passing legislation reflective of  HB 266 – Restricting Award Displacement at Maryland’s 4-Year Public Universities.

  2. Establish a priority order that requires institutions to eliminate unmet need before student loans, loans before student employment,  and employment before grants when addressing an over-award

  3. Prevent scholarships and fellowships from displacing other aid by striking the references to scholarships and fellowships in the definition of estimated financial assistance.

  4. Increase over-award tolerance beyond $300 to relieve the pressure on institutions to reduce aid.