Students who have worked hard, gotten good grades, and applied for a ton of scholarships shouldn’t have to worry about losing financial aid for their efforts. Too often, students receive an outside scholarship only to find out later that the grant and scholarship their college gave them has been cut.
Students should know that if they work hard to apply for outside scholarships, they will be able to retain those funds without losing other forms of financial aid.
Starting next year, California students from low-income families will no longer have to worry about losing their financial aid because they got a scholarship from an outside organization. A new law recently passed by the California legislature will ban a practice known as purse shifting.
What is Scholarship Displacement?
Scholarship displacement occurs when a student who is already receiving grants or scholarships from their college or university obtains an additional scholarship from a scholarship provider. Many schools require students to report any outside scholarships to them. Most scholarship providers send funds directly to the college or university the student is attending, so avoiding scholarship displacement is nearly impossible if a school uses this practice.
Schools will often reduce the financial aid they give to a student by the same amount as the funds they receive from an outside agency. Schools say they are doing this to help stretch limited institutional aid dollars. This process is deeply frustrating for students and scholarship providers. This leaves the student no better off than if he had never received an outside scholarship and wastes his precious time.
How does the new California law help students?
The new California law will prohibit the displacement of scholarships for students eligible for the Federal Pell Grant or the main California financial aid grant for low- and middle-income students. Colleges and universities will only be allowed to reduce the gift aid (money that the student does not need to repay) they have given a student only if the student’s total financial aid exceeds the school tuition.
California is now one of five states that prohibit scholarship travel. Maryland was the first state to ban the practice in 2017. Pennsylvania, New Jersey and Washington have also banned the practice.
The relocation of scholarships has begun to attract national attention. Reps. Kim (D-NJ) and Kelly (R-PA) introduced the Helping Students Plan for College Education Act earlier this year. The bill stops short of banning the displacement of scholarships, instead focusing on requiring schools to disclose their policies on how they handle external scholarships.
Providing more information to students is fine, but it puts all the pressure on students to be informed rather than on institutions to reform their practices. There is little research available on the number of students affected by the displacement of scholarships. A survey found that more than 50% of students who received outside scholarships had their other donations reduced as a result.
The Helping Student Plan For College Act directs the U.S. government accountability office to study scholarship movement, including scholarship demographics. Better data on who is most affected by the displacement of fellowships could improve policies governing the practice.
Is moving scholarships always a good thing?
Some commentators have expressed reasonable concerns that the ban on scholarship displacement could harm students from low-income backgrounds. Schools often claim that they reduce their financial aid when students receive an outside scholarship to distribute limited funds among more students, but this is little comfort to students who thought they had extra money to cover expenses. tuition and other university fees. It should also be noted that many outside scholarships are based on “merit” rather than financial need.
Higher-income students are more likely to receive merit scholarships than students from lower-income backgrounds. This poses problems if the ban on scholarship displacement reduces colleges’ flexibility in transferring funds from students with low financial need to students who need more financial support.
Students with the least financial resources are the most likely to be harmed when they have a misplaced scholarship. At first glance, it may seem reasonable to use the displacement of scholarships as a means of distributing limited funds among more students. However, this can harm students and prevent scholarship bodies from supporting the students they intended to support. This is a clear example of equal treatment leading to unfair results.
The California law avoids potential issues of reducing schools’ flexibility to help students by targeting students eligible for Pell and CalGrant grants. Students eligible for these scholarship programs are generally not from wealthy families and need all the financial assistance they can get to make college affordable.
There is a growing movement to outright ban the movement of scholarships. Yet until more states ban this practice, many colleges will continue to cut their scholarships when a student is awarded a scholarship. Students deserve to keep the scholarship they have won. Hopefully Congress will consider stronger action than requiring colleges to tell students they could withdraw funds if they receive a scholarship.