Jill asked a great question for this time of year, how does a student manage external scholarships? The external scholarship must be reported to the college and this usually happens after the student has selected the college that they wish to attend and has the college’s award letter in hand. Some families wish to negotiate with the college on how the external scholarships are managed BEFORE they accept the offer of admission feeling that this gives them a bit of leverage. If the first choice college will not negotiate with them on the external scholarships usage they still have the option of the second choice college.
The answer to Jill’s question is a bit complex and it would be great if you would read through my response to the question and see what is missing and share your thoughts with us.
Hi Jill ,
It is important for a family to know how to best report the external scholarships to the college financial aid office. A huge mistake is to report the total amount for the first year of college. Since the college cannot provide more than 100% of COA a student can get some college scholarships cut. You do not want the college to do the cutting! The student and family should try to control what is cut from the college financial aid package when they report the external scholarships to the college. Ideally the conversations should go something like, “Mary has $1,500 in external scholarships for her first year in college and we would like to decline the $1,000 PLUS loan and $500 of the student unsubsidized loan”. Is that possible?” Thank you
If a student has substantial external scholarships they should spread them out over 2-4 years of college. You report to the college only the
amount of external scholarships that you wish to use for that year of
college. “Mary has $2,000 in external scholarships and we would like to decline $2,000 of student unsubsidized loans……..thank you
All college financial planning must include ALL of the years of college attendance, 2 years, four years, five years, and if the student is going to graduate or professional school after completing college. The McKenzie ASPIRE web site has an excel workbook for financially planning all four years of college.
The next steps are influenced by the unique family situation and the unique college financial aid award letter.
The best strategy is to take a holistic view of the COA and the college award letter.
*Accept all of the college’s scholarship funding, aka gift/free
money. Be aware if the funding is for one year or if it can be
renewed for each year of college. If the scholarship is renewable,
what are the criteria for renewable.
*Does the family have any 529 college savings? Do any relatives
have a 529 college savings plan for the student? How to manage
these funds is also challenging if you wish to maximize college
scholarship funding. If there are no 529 college savings plans
how does the family or extended family plan on funding college
costs? It is important for a family to be clear on this step.
*Does the family wish to take advantage of the
American Opportunity Tax Credit? They need to be aware of
that the first $2,000 is 100% and the next $2,000 is 25% refundable
for up to $2,500 in tax credit. If the family owes no federal tax
up to $1,000 is refundable.
If so they will need to pay for
up to $4,000 of qualified educational expenses from cash flow,
savings (not 529 plans since you cannot double dip), or loans.
*How is the family covering the EFC if it is greater than 0?
*Is there a gap between the COA and the financial need met and if
so how will the family cover the gap in funding?
*Are loans a part of the college award package? The first
loans you would usually wish to decline (cover with external scholarships)
are the parental PLUS loans and then the student unsubsidized
loans. The student subsidized loans would be the last that you
might decline since they have the most desirable terms.
*Student Work-Study. I usually encourage students to keep
the work-study offer since it does not count against them on
the FAFSA and the research indicates that students who work
a modest amount 8-12 hours per week do a better job of time
management and get better grades.
Your question of how to manage external scholarship funding is a
great question! Most families do not manage this process well.
In conclusion to your great question, it all depends:-)
I am sure I missed some steps so I am going to share this with some of the mavens out in ASPIRE land.
George A. Letchworth, Ph.D.