The Truth Behind Private Scholarships
February 19, 2021
In the early 1970s, the U.S. auto industry received warnings from economic experts—if they continued on their current path, Japanese car companies would soon put them out of business. Detroit’s Big 3 of GM, Ford, and Chrysler were told that if they remained attached to producing oversized, inefficient American-style models, they would soon be surpassed by the compact, fuel-efficient cars being made by the Japanese if the price of gasoline were to drastically increase. Laughing off these dire warnings, U.S. auto execs continued with business-as-usual. Over the course of the decade, due to a changing atmosphere in the Middle East, the price of oil skyrocketed and the American car companies crumbled. If you’ve ever seen Eminem’s 8 Mile or a rerun of Hardcore Pawn, you have an idea of how things turned out in the Motor City.
It’s easy to become fixated on details that are new, shiny, and fun (like a ’72 Corvette) and ignore others that are counter to our belief system. Such is the case with how prospective high schools students and their families seek financial aid. For whatever reason, students and parents alike spend an inordinate amount of time seeking out private scholarships from employers, non-profits, and local organizations and not enough time focusing on where the bulk of aid money actually comes from.
Okay, so where does financial aid actually come from?
In 2019-20 academic year, $183.8 billion in student aid was delivered to undergraduate students. The vast majority of this was money awarded by the federal government and from institutions themselves. Only 7% came in the form of employer and private scholarships, a number that doesn’t quite support all of the hype.
So, where do students actually locate financial support for college? The percentages by source were as follows:
- Institutional Grants: 30%
- Federal Loans: 27%
- Federal Pell Grants: 15%
- Private and Employer Grants: 7%
- State Grants: 7%
- Federal Education Tax Benefits: 6%
- Federal Veterans Benefits: 6%
- Federal Work-Study & Federal Supplemental Educational Opportunity Grant: 1%
Is there really unclaimed college scholarship money?
Some websites and guidebooks proliferate the belief that there are millions of dollars in scholarships that go unused each year. While there is some truth to that statement, the fact also remains that many of those scholarships are inaccessible because the qualifying requirements are so limiting. For example, there may be a scholarship at a regional university specifically aimed at a student from a particular county, with a high school GPA of 3.5 or higher, who is majoring in interior design. If no incoming student meets these criteria, the scholarship may go unclaimed.
Fact: Private Scholarships can hurt your financial aid package
It is also important to note that since the federal government requires postsecondary institutions to consider private scholarships when calculating financial aid, outside scholarships can actually reduce your total aid package. Let’s say, for example, that a family’s expected family contribution (EFC) is $27,000 and the cost of the college is $40,000. In order to meet this cost, the college offers a $13,000 financial aid package to assist the family. Now let’s say that the student wins a $3,000 scholarship from a local employer. In this instance, most schools would then reduce their respective financial aid offers by $3,000. Hopefully, these reductions target loan awards, rather than grant awards, although that isn’t always the case at every school. All in all, private scholarships have very little impact on the “bottom line” for students requiring need-based aid since scholarships often lead to a reduction in their original financial aid award. For affluent students who do not require aid, however, scholarships will undoubtedly impact out-of-pocket costs by reducing the amount they owe.
The best places to look for private scholarships
By no means do we want to discourage you from applying for private scholarships; we just encourage you not dedicate an excessive amount of time to these pursuits. Should you remain interested, we will attempt to expedite and enhance your quest by offering the following tips for pursuing private scholarships.
How do I actually get money for college?
In the previous breakdown of 2019-20 aid by type, you can see that the top source for grants comes in the form of “institutional aid”. Digging deeper, this money can be divided between need-based and merit-based grants. Merit-aid is money offered by colleges to prospective students on the basis of academic merit (GPA, SAT/ACT, etc.) and is generally awarded to applicants with better credentials than a given institution’s average enrolled student. While need-based aid is awarded based off of the financial information entered in your FAFSA and/or CSS Profile, many middle-class and upper-income families often find more assistance on the merit-based front.
For more on how to capture this potentially game-changing money, consult our article entitled 5 Secrets to Winning Merit Aid.
If you are a lower-income student and are accepted into a university known for being generous with need-based aid, you will very likely end up quite pleased with the net price of your college education. You can view the average percentage of need met and average need-based grant amount at hundreds of top schools on our easy-to-use Dataverse.
