Scholarship Myths & Misconceptions

Careers and Colleges, Jan, 2000 by Anna Leider

When it comes to financial aid, most students immediately think of one thing: scholarships. Scholarships certainly can help you afford college, but many students and their families focus too much energy on searching for these awards without devoting enough time to the other--more abundant--sources of aid. To put scholarships in the right perspective, consider the following four scholarship myths.

MYTH #1: SCHOLARSHIPS ARE THE BIGGEST SOURCE OF FINANCIAL AID. When it comes to the entire financial aid pie--including federal loans, federal grants, tax credits, collegiate resources, and state aid, private scholarships account for only about 2 percent. Federal loans and grants, on the other hand, make up more than 60 percent of all financial aid. The point is: Don't make scholarships your number-one priority--head for the big slices of pie before you search for crumbs.

MYTH #2: IF I WIN A SCHOLARSHIP, I PAY LESS FOR COLLEGE. Most people assume scholarships put money directly into their pockets. That is not how the system works. Consider this example: You complete your Free Application for Federal Student Aid (FAFSA) and learn your Expected Family Contribution (EFC) toward college costs will be $7,000 per year. Let's say your top-choice school, Nirvana State, costs $12,000 per year and based on your EFC, you have an aid package of $5,000.

  EFC              $7,000
  Need-Based Aid   $5,000
  Cost of College $12,000

One lucky day, you win a $1,000 scholarship. Now your contribution will be $6,000, right? Wrong. Nirvana takes the $1,000 as well as your family's $7,000 expected contribution. In effect, your need is $1,000 less so you get $1,000 less in need based aid.

  EFC              $7,000
  Scholarship      $1,000
  Need-Based Aid   $4,000
  Cost of College $12,000

This packaging may seem unfair, but colleges have little choice about how they use a private scholarship if they want their students to be able to receive federal student aid funds. If the cost of college exceeds your contribution, schools must include that award as part of your family's resources.

So is looking for scholarships worth-while? Yes, if you can convince your school to use the money to replace a loan component of your aid package, instead of a college grant. What if Nirvana State uses your $1,000 award to replace a loan it had planned to give you? That's $1,000 less you'll have to repay after you graduate.

Also, if the scholarship exceeds your need, then you do pay less for college. If you won a $6,000 scholarship and you were still going to Nirvana, you would pay $1,000 less--$6,000 instead of $7,000.

Cost of College $12,000

- Scholarship $6,000

- Need-Based Aid $0

Your Contribution (EFC) $6,000

What would happen if you won a $13,000 scholarship? Could you use the extra $1,000 to finance your winter trip to the Yucatan? No! You can only receive $12,000--financial aid cannot exceed the cost of attendance (including room and board); it cannot provide income for you.

MYTH #3: THERE IS A SPECIAL SCHOLARSHIP JUST FOR ME. There may be a "special scholarship" that matches your distinct qualifications--however, there's a big difference between being eligible and winning. For example, Coca-Cola gets 122,000 applications for its 250 awards; odds of winning, 488:1. ESPN gets 20,000 applications for its 8 awards; odds of winning, 2,500:1. Our advice: Apply for federal, state, and college aid first. Then, start looking for a "special scholarship." You may even find one.

MYTH #4: MILLIONS OF SCHOLARSHIP DOLLARS GO UNCLAIMED EVERY YEAR. This claim is usually made by computerized scholarship search companies that hope you will send them $25 to $200 to find those millions that are just lying there waiting for you. We're sure a few scholarships do go unused every year, but for once, we would like to see some concrete examples of these vast untapped resources. According to most financial aid professionals, the millions you hear about are unused employee tuition benefits.

Corporate benefits usually go to employees or children of employees, either in the form of tuition reimbursements or company scholarships. Some corporations do give money to students whose parents aren't on the payroll. Usually, though, this is done via grants to colleges; the colleges in turn select the recipients--you don't apply for the money directly.

So what is the right route to the student aid process? Smart students first apply (early, accurately, and honestly) to all the major assistance programs (federal, state, and college) for which they are eligible. They also select colleges that are most likely to present them with a good aid package and discuss with financial aid officers (if appropriate) the possibility of an improved aid package. They become knowledgeable about all the options for financing educational expenses.

And finally, they look for scholarships.

Anna Leider is the president of Octameron Associates (www.octameron.com), publisher of many financial aid guides.

BEWARE OF SCAMS!

A scholarship is guaranteed or your money back."