What is a Scholarship and How Do They Work?

College costs are higher than ever, making it even more critical for students to obtain financial aid. Scholarships are gifts that do not require repayment and can often help reduce the costs of attending school. Several types of scholarships exist for high academic achievers, athletes and people who cannot afford them without significant help.

There’s no way around it: college is expensive. College costs continue to rise, and concerns about student debt grow . That means finding ways to make college affordable is an even bigger priority. Current university students and those who plan to attend school in the future need maximum help.

Beyond student loans and 529 college savings plans designed to save money for college, scholarships are another significant way to finance a college education.?

What is a Scholarship?

In education, a scholarship is a gift from an institution, business, individual, nonprofit or professional organization to pay for a college education.

Where Does Scholarship Money Come From?

Scholarship money comes from several places. Thousands of scholarships exist, and various organizations and individuals offer them. Typical scholarship sources include:

• Schools.
• Employers.
• Individuals.
• Private companies.
• Nonprofit organizations.
• Communities.
• Alumni groups.
• Religious groups.
• Professional organizations.
• Service organizations.

What Are the Different Types of Scholarships?

Depending on a student’s circumstances, they can receive scholarships for many different reasons. Some universities offer scholarships for academic merit. Other students receive scholarships to attend school and play sports. Most college scholarships, however, go to students who display financial need.

Merit Scholarships

High academic achievers often receive merit scholarships to help pay for students. It is one of the most common types of scholarships. Students can receive this financial aid because of their grades or their participation in extracurricular activities.

According to data from ThinkImpact , nearly 22 percent of undergraduate students received merit-based aid in 2019 and 2020. The average support totaled $4,700 per student, although some receive more.

Some private organizations, such as the Lily Endowment , offer significant forms of merit aid. These funds promise to cover students' tuition, fees and book stipend for four years. Many of these scholarships come with significant restrictions. These can include attendance at an in-state school and participation in activities for years after graduation.

Athletic Scholarships

The National Collegiate Athletic Association (NCAA) allows universities at Division I and Division II levels to offer scholarships to athletes who want to play a sport. Student-athletes are subject to strict acceptance requirements and rules that govern their academic performance. Smaller schools may offer scholarships to their student-athletes, including institutions that are members of the National Junior College Athletic Association (NJCAA) .

Fewer than 2 percent of high school student-athletes receive scholarships, most of which are not “full ride” programs. Each division has a maximum number of scholarships they are allowed to offer . For example, NCAA Division I is the highest athletic program tier. The NCAA limits the number of scholarships for the entire division to 74,243. Compare that with the number of athletes (139,063), and it becomes apparent that not everyone receives enough money to cover all costs.

Need-Based Scholarships

Students receive need-based scholarships after submitting their (and their parents) financial information to the government via the Free Application for Federal Student Aid (FAFSA) . Students submit this form annually to provide updated financial information and request student aid through grants, scholarships and loans.

Many universities offer need-based aid to students after reviewing this form. In addition, the federal government can supply additional assistance to students through Pell Grants , gifts that do not require repayment. These grants only apply to students who display “exceptional financial need.”

Are Scholarships the Same as Loans?

Loans differ significantly from scholarships because loans require repayment. In addition, scholarships often come with restrictions; the scholarship gift may only be good for four years of education. Students may continue to take out loans beyond the traditional four-year window, for an additional year to wrap up a bachelor’s degree or prepare for a graduate course.?

How Can You Spend Scholarship Money?

A student can use scholarship money to pay for any education expenses their school deems necessary. How a student spends scholarship money depends on how the organization or group giving the scholarship delivers it.

Many organizations send the scholarship funds directly to the school, which then applies them to the student’s academic costs. Schools that give scholarships to students add the funds to the balance as needed.?

Other organizations write checks directly to the student and allow them to deposit the money as they wish. If students’ scholarships and college savings plans cover the entire balance, the school may send the student any leftover funds in the form of a check. They may also allow the student to withdraw those funds from their account as they would a bank.

How Long Do Scholarships Last?

Unfortunately, for students who want to take time off to travel or pursue other opportunities before college, scholarships do tend to expire within 12 months . Most students who receive financial aid need to use it the following school year. Some scholarships may expire after a student takes a certain number of credit hours, usually enough to receive a degree.

Can You Lose Scholarships?

Students absolutely can lose scholarships for various reasons . Some common instances where a student may have their scholarship taken away include:

• Failing to renew scholarships on time. Students with scholarship money usually renew their scholarships yearly, particularly if the money comes from the school itself.?
• Poor academic performance.?
• Sustaining injury as a student-athlete. Intercollegiate athletes who get hurt may lose their scholarships if they are unable to perform in their sport, although schools may choose to help the student with other types of financial aid.?
• Abusing scholarship funds.

How to Apply for a Scholarship

According to the national scholarship search database Scholarships.com , “The only way to have a shot at winning scholarships is to apply for scholarships.”

In addition to national databases for students, high school counselors should be a valuable resource . They can inform students about every available local opportunity for earning scholarship funds.?

High scholastic achievers should also seek out and apply for academic scholarships from as many groups as possible. Students who plan to study a particular field can find financial aid available at their program’s professional organizations .?

Each scholarship has different requirements, so always read the fine print and stay organized with application materials. When possible, make photocopies of documents to send so as not to lose the originals if they become necessary for other paperwork down the road.

Top Takeaways

• Scholarships help students pay for college.
• Scholarships differ from loans in that money does not require repayment.
• Students receive scholarships based on merit, athletic prowess or need.
• Students can lose scholarship money if they fail to meet the requirements of that scholarship.
• There are thousands of scholarships out there. Simply applying for them can make all the difference in paying for college.

(Reporting by NPD)