How Do Scholarships Work?

How do Scholarships Work?

College can be expensive, and figuring out how to pay for it can be overwhelming. Although there are financial aid options and scholarships available that can make the cost more manageable, many students miss out on scholarship opportunities because they don’t know where to find them or mistakenly believe they won’t qualify.

Scholarships aren’t just for star athletes or straight-A students. There are thousands of scholarships that are designed for students with different interests, talents, and qualifications. According to a recent study by Barnes and Noble Insights for College Ave, 51% of students used scholarships or grants over the course of their education to cover college costs.

But how do scholarships work, and how do you find the right ones? By learning the ins and out of scholarships and financial aid, you can reduce some of the financial stress that comes with going to college.

What Are Scholarships?

Scholarships are a form of gift aid that doesn’t have to be repaid and can be used to cover tuition, fees, room and board, books, supplies, and more.

Scholarships can provide a one-time lump sum, or some scholarships are renewable, meaning you can use them to cover several semesters or even several years of your education.

There are many different types of scholarships, including:

  • Academic merit: These scholarships are awarded based on academic performance, such as GPA and standardized test scores.
  • Athletic: These scholarships are offered to students who participate in a sport, such as football or swimming, at an elite level.
  • Identity-based: These scholarships focus on particular areas like gender, ethnicity, religion, disability status, or military affiliation.
  • Activity: These scholarships reward students who demonstrate excellence in a specific area, like music, theater, or robotics.
  • Need-based: Some scholarships are geared towards high-performing students with limited financial means to make college more affordable.
  • Chance: Chance-based scholarships do not require students to fit any criteria. Instead, anyone can apply, and the scholarship winners are chosen at random, like a sweepstakes giveaway. College Ave’s monthly scholarship is easy to apply for and is a great example of a chance-based scholarships.

Scholarships can come from colleges or universities, non-profit organizations, government agencies, and private companies.

What Can I Spend My Scholarship Money On?

How you receive scholarship dollars depends on the type of scholarship you’re awarded. Institutional and government scholarships are usually in-kind aid, meaning that your college costs are waived or reduced.

With scholarships from non-profit organizations or private companies, you may receive a check for the scholarship amount.

Some scholarships have conditions and restrictions. For example, it may state that the scholarship can only be used for tuition, and not for other education-related expenses. Or you may be required to attend an awards ceremony or maintain a certain GPA.

When you qualify for a scholarship, the organization that issues the award will tell you how much money you’ll receive and any restrictions on the scholarship’s use. In general, scholarships can be used for the following expenses:

  • Tuition
  • School-related fees
  • Textbooks

Although scholarship dollars can often be used for other education-related expenses, such as your room and board or transportation, keep in mind that there are some drawbacks to using the money in that way.

Scholarships are tax-free as long as they’re used for qualified education expenses. But room and board, travel, and equipment that isn’t required by the school aren’t qualified expenses, so scholarships used for those expenses will count as income for tax purposes. And because that money is viewed as income, it could impact your eligibility for other forms of financial aid in the future.

[Tip: When you receive a scholarship, make sure you let your school’s financial aid office know. Your total financial aid cannot exceed the school’s total cost of attendance, so the college will deduct the scholarship amount from the cost of attendance.]

How Do I Find Scholarships?

Scholarships can come from several sources:

  • Your college or university: Your college or university is a great place to start. Most schools offer scholarship and grant programs, including academic-based awards. According to The College Board, college-based awards account for 53% of all undergraduate gift aid.
  • Non-profit organizations or private companies: Non-profit organizations and companies also offer scholarship and grant opportunities, making up 12% of gift aid.
  • State government: Some states operate grant and scholarship programs. State-based grants and scholarships make up about 9% of all gift aid.

To search for opportunities, follow these tips:

  • Fill out the Free Application for Federal Student Aid (FAFSA): A completed FAFSA is necessary to qualify for several forms of financial aid, including federal grants and student loans. Some schools and organizations also use the FAFSA to determine your eligibility for grants and scholarships.
  • Contact your school’s financial aid office: Your school’s financial aid office can tell you what institutional financial aid is available and what is required to apply for any school scholarships or grants. They may also be able to refer you to other sources of funding.
  • Visit your state education agency website: Your state department of education or education agency may have information about state-run grants or scholarship programs, including details on the scholarship application process and deadlines.
  • Use scholarship search tools: There are many reputable scholarship databases you can use to find available opportunities. Top scholarship search tools include:

[Tip: Looking for a scholarship you can apply for right now? Enter to win College Ave Student Loans’ $1,000 monthly scholarship sweepstakes. Each month, we give away a $1,000 cash prize to an eligible high school or college student. It takes just a minute to enter!]

FAQs About Scholarships

Is it normal for a scholarship to charge a fee?

No, reputable scholarship programs don’t charge application fees, processing fees or any other type of fee. If you are required to pay money to apply or provide credit card or payment information, that’s a red flag that the program is a scam.

Some companies will offer to search and apply for scholarships on your behalf in exchange for a hefty fee. These services should be avoided; there is nothing these companies can do that you can’t do on your own for free.

When should I start searching for scholarships?

When it comes to scholarships, the earlier you begin, the better. While many students don’t start searching until their senior year of high school, there are several scholarship opportunities available to first-year high school students.

For example, the students in grades nine through 12 are eligible for the American Foreign Service National High School Essay Contest. The scholarships winner can get a $2,500 prize, as well as a paid trip to the nation’s capital, and an all-expense paid educational trip through Semester at Sea.

Are scholarship funds taxable?

In general, college scholarships and grants received for college tuition and school-required fees are not taxable as income. However, scholarship funds used for other expenses, such as room and board or travel, must be reported with your gross income on your tax return.

Do I have to repay a scholarship?

Scholarships are a type of gift aid, so they don’t need to be repaid. However, scholarships can have some requirements to meet, such as staying enrolled at least half-time and meeting certain GPA requirements. And with some awards, if you leave school, you may have to repay a portion of the scholarship.

Review the scholarship terms and conditions to make sure you understand what the scholarship issuer requires of you and under what circumstances you would have to repay the award.

What is the deadline to apply for scholarships?

Scholarship application deadlines vary depending on the program. Some must be submitted months in advance, while others have more flexible deadlines. And while some require just a basic application form, there are some scholarships that require video submissions, essays, letters of recommendation and transcripts. Collecting all the required materials for a scholarship can be time-consuming, so make sure you start your search and gather all materials several months in advance.

Paying for College

How do scholarships work? Now that you know the answer to that question, you can start searching for available gift aid opportunities and submit your applications. By starting early, you can apply for (and potentially win!) several awards, reducing the amount of money you have to pay for college out of your own pocket.

If you need help paying for the remaining balance, student loans can cover the gap. If you still need to borrow money after tapping into federal student loans, you can apply for a private student loan through College Ave and take advantage of competitive rates and multiple in-school repayment options.


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