Scholarship Displacement: What is It & How to Avoid

Male student looking surprised at laptop
September 25, 2023
4 min read


Reviewed by:

Rohan Jotwani

Former Admissions Committee Member, Columbia University

Reviewed: 9/25/23

Thinking of applying for private scholarships? Watch out for scholarship displacement before you end up losing any money. Read on to learn more about scholarship displacement and how to avoid it!

Piggy bank and coins

Getting into college is hard enough. It can feel like there’s a million steps just to get accepted at a half-decent school. You need a great GPA, outstanding SAT scores, the right AP classes, and competitive extracurriculars. The last thing you want to think about is the gigantic price tag that comes with your degree at the end of it all.

Many students apply for private scholarships to ease the monetary burden of college. Some private companies, organizations, and institutions understand the value of a college education and seek to help those who are struggling. This kindness and generosity, however, isn’t so straightforward.

What if you were told that all your efforts in achieving a private scholarship actually led to you losing money? The reality of the matter is it’s a phenomenon that occurs more frequently than you think, and it’s all due to something called scholarship displacement.

What is Scholarship Displacement? And What’s the Impact?

So, what is scholarship displacement anyway? Scholarship displacement is when students see a reduction in their grants and loans from colleges after being awarded private scholarships. The practice is touted as a fairness strategy by colleges in order to prioritize students who aren’t eligible for private scholarships.

Scholarship displacement is frequently seen as an unfair practice. It penalizes industrious students trying to make the best use of their resources and the private institutions awarding these scholarships. Often, students are required to write complicated essays or take part in interviews to attain such funding.

The impact can be huge and result in students losing out on thousands of dollars. Sometimes, schools will reduce grants and loans to such an extent that students are often wondering if it’s worth applying for private scholarships at all.

How to Avoid Scholarship Displacement

So, how do you avoid scholarship displacement? 

The first thing you need to do when learning how to avoid scholarship displacement is inform yourself. It’s imperative you speak to the appropriate admissions and financial aid officers to equip yourself with everything you need to know. If you’re feeling lost and don’t know where to start, consider speaking to your guidance counselor.

The exact details of the practice can vary from school to school. What’s worse is some schools may engage in stealth scholarship displacement, where they claim not to reduce funding but still manage to.

If you’re worried your funds may be impacted, make sure to ask the right questions. Whenever speaking to admissions or financial aid officers, ask about private scholarships, how they impact grants and loans, and if the school has any explicit policies on scholarship displacement.

Questions to consider:

  • What are the policies on scholarship displacement?
  • How will applying for private scholarships affect my loans and grants?
  • Are there any ways to avoid or minimize scholarship displacement?
  • Do certain kinds of scholarships have a bigger impact than others?

States Against Scholarship Displacement

The good news is there are a few states that discourage displacing scholarships. 

If you were considering attending schools in these areas, you could potentially save yourself a lot of headaches when it comes time to apply for private scholarships. Although no two states are the exact same, there are a few that stand united against scholarship displacement policies.

Maryland was one of the earliest states to discourage the practice in 2017. The only exception is if your private scholarship would be greater than attending the college in question or with influence from the scholarship provider. This was followed by New Jersey in 2021 with similar restrictions in addition to rules for athletic groups.

In 2022, three more states joined the ranks to stand against scholarship displacement. Pennsylvania, Washington, and California now all have rules where students’ grants and loans are no longer jeopardized as a result of private scholarships. 

Don’t forget to familiarize yourself with scholarships for out-of-state students if you’re interested in attending a school in these states.

FAQs: Scholarship Displacement

Still wondering if your grants and loans are safe from scholarship displacement? Check out some expert answers to our top questions!

1. How Do You Fight Scholarship Displacement?

The best way to fight scholarship displacement is to be prepared and familiarize yourself with the exact guidelines and practices of your colleges of interest. Asking the right questions to admissions and financial aid officers will ensure that you know what to watch out for when applying for financial aid and private scholarships.

2. What States Ban Scholarship Displacement?

The five states that have active policies discouraging scholarship displacement are Maryland, New Jersey, Pennsylvania, Washington, and California. Although the exact legislation varies by state, they all have similar policies to prevent scholarship displacement. There’s also information on Ivy League scholarships for relevant states.

3. What Is the Scholarship Displacement Bill in California?

The scholarship displacement bill in California bans the practice for those who earn the federal Pell Grant or state scholarships if they come from a low-income background. This would result in students being able to keep more of the money scholarship providers give but still exclude those from different levels of affluence.

Final Thoughts

Although not everyone applies and receives private scholarships, the few who do should make sure to take every step to reap the rewards of their hard work. Financial planning is a huge part of the college process, and you don’t want to be caught off guard when a school is cutting your funding short.

Dealing with scholarship displacement can be a huge hassle and cheat you out of the compensation you deserve from being awarded private scholarships. It’s always a good idea to conduct thorough research when applying for these programs and double-check what your college has to say about scholarship displacement. 

If you’re planning on attending school in one of the five states that stand against scholarship displacement, you’ll definitely have an easier time making sure you keep any money you’re awarded. 

In any case, having a college game plan means developing a financial strategy so you can thrive as the best version of yourself when it comes time for graduation.

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