Federal regulations regarding outside scholarships and overawards (and why they reduce need)

Paying for College
1

I am putting together information to share with some local parents and I want to ensure that my information is accurate.

Brown states on their website that “Outside scholarships can be used to reduce the entire amount of student effort. Student effort includes campus employment, student loans, and the standard summer earnings expectation. Federal regulations stipulate that outside scholarships cannot be used to replace the Parent Contribution or any additional Student Contribution derived from student assets.”

In this document http://ifap.ed.gov/fsahandbook/attachments/1516FSAHbkVol3Ch7.pdf that need is defined as cost minus EFC. It later states that “If, at any time during the award period, the student receives additional
Estimated Financial Assistance that was not considered in calculating the
student’s eligibility for Campus-Based aid, and if the estimated financial
assistance combined with the expected financial aid will exceed the student’s
need, the amount in excess of the student’s need is considered an overaward.”

So, my understanding is that schools can reduce the student contribution (loans, work study, and the earning portion) but legally cannot reduce the parental contribution with outside scholarships if federal financial aid is involved.

Is that correct? Or is there information that I am missing in order to understand the complete picture?

Thanks!

2

Or is campus-based aid something different? (Ok…the more I read, the more I am confusing myself!)

3

Ok, I think my understanding is wrong bc Colgate states the following:

Outside awards
Outside awards are those a student receives through a competitive or merit-based selection process. While the combination of outside award(s) and financial aid from Colgate cannot exceed our annual cost of attendance, Colgate allows a student to receive the maximum possible benefit from an outside award by reducing first the portions of the aid award for which the student and family are responsible. Thus, any outside award(s) will first be used to offset family contribution, job and/or loan. Only after those sources of funding have been offset entirely will the outside award reduce a student’s Colgate Grant.

I have decided to not even attempt to address it directly and just tell them to make sure to ask individual schools what their policy is.

4

I think the key difference is whether the need aid is from the federal govt or from the university itself.

5

I think the key is…YMMV. Schools will not award need based aid in excess of the cost of attendance. That much I know.

6

It seems Brown is trying to present their finaid policy as a federal regulation.
What if Brown student has a parent working for a university with a full tuition benefit and his EFC is more than full tuition? Or has a full ride scholarship from a foreign country? In these cases the student will pay less than their institutional EFC although Brown may eliminate their grant.

Schools like Brown or Colgate that meet full need with their own money will usually allow to use outside scholarships to replace Student Effort (loans, summer earnings and workstudy) first and then they will start decreasing their institutional grant. They will want you to pay your institutional EFC no matter what and there will be no further benefit from the scholarship unless your outside money are more than their grant plus Student Effort.

At the school that gives merit aid you can have a merit full ride plus have Pell/State grant refunded to you up to COA. Or you can have a merit full tuition, live off-campus and have Pell/State grant and federal loans refunded to you up to COA.

7

Actually…if a student gets a full ride merit award…and is still Pell eligible…they would get the Pell also…it’s an entitlement.

8

I think Brown’s statement on the website is flat wrong.

If it were correct, Harvard couldn’t limit OOP costs for students the way they do. For most students, Harvard’s financial aid will result in a lower OOP cost than their EFC would indicate. Frequently much, much lower.

9

@thumper1 In that case, I think they’d decrease the scholarship so that it fits COA. But yes, as long as there’s room left merit + pell should always stack.

10

@Lilliana330 some schools do not decrease the merit award…and the student gets the Pell in addition. It’s the ONLY time a student can actually get more aid in total than the cost of attendance.

11

WHOA! So Colgate is allowing EFC to be covered by outside scholarships, and still maintain Colgate grants? So what about the “federal law” that is constantly cited prohibiting FA in excess of need?

So the more generous colleges allow this(Brown):
EFC 20k
Pell/College Grants 32k
Loan and work study 8k

You get 12k in outside merit. Loan and work study is eliminated. College reduces their grant to 28k. Family still pays 20k

But Colgate is stating that they would eliminate the loan and work study, and then apply the remaining 4k to EFC? Really?

So what about the “federal law?” It always sounded like bs to me anyway. Why would the Federal government care in the least how much a college gives under the guise of FA? As @arabrab mentioned, they come up with their own ideas of “need” anyway, it is not uniform or regulated by the government.

12

@CCDD14 That is exactly our situation. Full tuition benefit lowers the cost of the school below our EFC as determined by FAFSA. There is no federal regulation that says we have to pay the EFC. The schools own policy allows outside scholarships to be applied to room/board, lowering the amount we pay even further (still no federal regulations disallowing that). Now, we cannot receive aid in excess of the COA (I believe that is a federal regulation). And the school’s policy is that need-based aid will be applied first to tuition, thereby reducing the amount of exchange awarded…but their policy was a lot easier to follow that Brown’s. Good heavens, what a convoluted mess that one is.

13

Thing is we were told the exact same thing as stated on Brown’s website by another university when our oldest D was applying to colleges, so it isn’t just Brown saying that federal regulations are the reason why.

The policy of reducing student loans and work study before institutional grants seems to be the common approach. Allowing the outside scholarships to reduce the parental contribution does not seem to be the norm. I was surprised to see that on Colgate’s website.

Basically it seems up to the individual school to do what they want.

14

At the end of the day the school has a right to determine the guidelines under which they will give you their money. ETA:the link for FAA to package awards states that different schools have different philosophies regarding packaging. Not all schools use the same software to package. It wa interning to see the different ways different schools can oackage the same student.

I does not make one school right or another school wrong just like a school will meet a 100% of your need while another one won’t.

With almost 4000 colleges in the U.S. You would be hard pressed to come up with policies that fit every single school as to how they handle outside scholarships. The best information that you can pass on to other parents is to read the school’s policies and don’t be afraid to consult the school in question

15

@sybbie719 That is exactly what I have decided to do.

16

Shame on schools for adopting a policy that meets that particular school’s values, goals, and finances and then claiming that federal regulations requires that policy when it does not. The only federal regulation that I am aware of that is applicable to this situation prohibits aid from all sources above and beyond the COA. COA, however, is a very flexible standard that can be tweaked for each individual student (e.g., may include study abroad, day care costs, etc).

17

Federal regulations prohibit two things: 1) Awarding federal subsidized aid (FSEOG, FWS, Subsidized loans, Perkins loans) that exceeds “need,” which is defined by school’s financial aid COA - FAFSA EFC; 2) Awarding a combination of aid in excess of school’s financial aid COA. #2 has a caveat: Pell has to be awarded if the student is Pell-eligible, so a student can technically receive scholarships+Pell that exceeds COA (lucky student!).

Schools can do whatever they want with their own institutional aid. If any federal aid is included in the financial aid package, though, the federal rules will apply. Brown states on their website that “… Federal regulations stipulate that outside scholarships cannot be used to replace the Parent Contribution or any additional Student Contribution derived from student assets.” Brown is correct. If there is any subsidized federal aid in the financial aid package, it can be affected. For example, let’s say this is the package:

COA = $60,000
EFC = $45,000 (Note that EFC is comprised of both a parent contribution and a student contribution)
Need = $60,000 - $45,000 = $15,000
Subsidized loan = $3,500
Unsubsidized loan = $2,000

Now let’s say a student wins the Coca Cola $20,000 scholarship:
COA = $60,000
EFC = $45,000
Need = $60,000 - $45,000 = $15,000
Scholarship = $20,000
Unsubsidized loan = $5,500

The reason this changed is because there is no remaining need after the scholarship is applied - therefore, there can be no subsidized loan awarded. In the context of Brown’s policy, the scholarship cannot be used to replace any portion of the EFC - in other words, you can’t make the argument that the student “earned” the scholarship & therefore that the scholarship should be considered as the student paying for his EFC.

The school may have its own EFC it uses when awarding institutional aid, and this is where the whole concept of summer contribution and the like will affect institutional awards. In this case, the federal rules are not affecting the institutional awards, but again … schools do have to consider federal rules when awarding institutional aid, and sometimes the federal rules will impact the institutional awards.

COA, however, is a very flexible standard that can be tweaked for each individual student (e.g., may include study abroad, day care costs, etc). Not really all that flexible - there are numerous federal regulations that apply to COA adjustments. A school cannot ethically inflate a particular student’s EFC just to allow more aid, and any adjustments must be requested by the student and fit within both federal guidelines and institutional policies.

18

@kelsmom I was hoping you would chime in. I definitely see why the unsubsidized loans were removed in your example,but what about instutional grants?

Say in your example that the EFC is $25,000 and the student was originally awarded $20,000 in institutional grants and then the student won the $20,000 scholarship. Is the school bound by federal law to replace the grant $20,000 with the scholarship or can it legally be allowed to replace $20,000 of the EFC?

19

@kelsmom I don’t quite get your example. If the student got the Coca Cola scholarship, why do you still have an unsubsidized loan? The student no longer needs the loan to meet the COA. What is prohibiting Brown from applying the entire $20k scholarship to reduce the EFC. So, COA=60k, EFC - $45k, Need = $15k. Why can’t Brown apply the $20k to the package, eliminate all loans, and EFC becomes $40k?

20

You can borrow an unsubsidized loan to meet EFC.