Education

How getting a college scholarship could reduce your financial aid

The practice of "scholarship displacement" nullifies the efforts of organizations who award the scholarships as well as the work of the students.

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Zaniya Lewis was over the moon when she won the Taco Bell Foundation scholarship in 2019 for $25,000. But she didn’t realize that extra money would end up cutting her financial aid. 

She gave the check to her college and was told that her financial aid would be decreased, including her work study. To make up for the shortfall, Lewis ended up with $20,000 in student loans.  

It’s known as scholarship displacement. That’s when colleges reduce financial aid when students get outside scholarships. It negates the efforts of community organizations, corporations and nonprofits that award the scholarships as well as the efforts of the student who spent time writing essays and getting recommendation letters.  

Scholarship displacement leaves students in essentially the same financial position since financial aid provided by the school is taken away. Displacement comes in different forms — scholarships, loans and work-study can be displaced.  

Frustrated with her situation, Lewis launched two organizations to fight against the taking away of private scholarships by colleges. YesSheCanCampaign and Disscholared are both nonprofits that help students advocate against this practice.

“There are so many students who are getting their scholarships displaced winning outside scholarships,” Lewis said. “Most students find out too late. They don’t know their school has a scholarship policy.”  

What happens when students find out that their financial aid is being taken away means having to take out student loans, Lewis said. That’s for those who qualify as some students do not have co-signers to guarantee loans. Which leaves them in a precarious situation of having to drop out. 

Scholarship displacement most acutely impacts lower-income students, Lewis said. 

A movement is underway against this practice. Five states passed laws restricting scholarship displacement at public universities: Maryland, New Jersey, Washington, Pennsylvania and California. 

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On the federal level, Congressmen Andy Kim, D-N.J., and Mike Kelly, R-Penn., introduced the Helping Students Plan for College Act, addressing the practice of scholarship displacement.

"Practices like front-loading aid and scholarship displacement make it harder for students and their families to plan for college," Kim said in a statement.  

The bill did not make it out of committee last Congress, and will be reintroduced during this Congress in fall. 

According to a 2021 national survey conducted by Student Beans, 50% of U.S. college students who receive private scholarships experience scholarship displacement.  

Lewis is working on raising the issue with the Department of Education. It’s not just private scholarships that have been displaced, but military benefits such as the G.I. Bill as well, she said. 

“They’re getting penalized for sacrificing for this country. That’s not right," Lewis said.          

Zaniya Lewis at George Washington University