Reporting scholarships

Paying for College
1

<p>I have several questions about the mechanics of financial aid. Thank you for any replies:</p>

<p>Does anyone know the exact federal laws governing financial aid, insofar as the requirement that you report all outside scholarships to your school? More specifically, I’ve gotten varied answers from colleges as to what exactly defines a ‘scholarship’ and what must be reported. Is that a matter of institutional policy or government regulation?</p>

<p>For example, assume a simplified financial package of only:

  1. Minimum Family Contribution (FIXED, demonstrated need)
  2. Grants from college</p>

<p>In such a situation, assuming all self-help and gapped aid have been met by outside scholarships, any additional outside scholarship begins to reduce the grants from the college, dollar for dollar. This raises the question, “what qualifies as a scholarship?”</p>

<p>Can anyone tell me how the following monetary situations would be handled in terms of the financial package above? (That is, would the grants be reduced, and would the transaction have to be reported to the college?)</p>

<li> Relative offers to pay portion of tuition directly to school.</li>
<li> Relative gives family gift less than $11,000 (maximum untaxed gift amount)</li>
<li> Relative gives family gift exceeding $11,000</li>
<li> Family realizes large unexpected financial windfall (does this change current-year financial need or the next year’s? When is the cut-off date?)</li>
<li> Situations 1-3 by a non-relative. (Any difference?)</li>
<li> Situations 1-3 by an organization.</li>
</ol>

<p>–</p>

<p>Some of these are hypothetical situations I’m curious about, but in our case, we have a local organization that has offered a scholarship and wants to (surprise) actually help student save money. If the scholarship is reported to the school as a scholarship, they will reduce the grant by the amount of the scholarship, rendering it completely useless. One representative has suggested this is required by federal law. (Anyone know?) However, if the organization were to gift the funds directly to student (less than $11,000), would this need to be reported? If so, is it treated the same way as a scholarship? Is it treated like income to be reported for the next year’s financial aid? Would the organization no longer be able to claim a deduction?</p>

<p>–</p>

<p>Thank you again for any insights!</p>

2

<p>Hmmmm...lots of choices here...let's see....</p>

<p>I wouldn't think that any of your #s 1-3 would affect the school (#3 would have some tax implications for next year, though). The school wouldn't care that Grandma is paying half your way or something, so long as it's not the school's money or any gov't funds. To them it appears that the money is still coming from your family's pocket. Seems it would be easier paperwork to have the relative give your parents the money (avoids you appearing to have hidden some assets, which FAFSA counts more heavily than your parents' in EFC), then send just one check each semester, though.</p>

<p>The #4 would be the same as far as the school goes - it's still your money coming to them. But that windfall WOULD affect your FAFSA calculations for NEXT year...and IRS filings would show it, even if you don't put it in the FAFSA. You'd be OK for the finaid already allotted for this coming year, though.</p>

<h1>5 would be the same as 1-3...it still looks like your family is paying the bill.</h1>

<p>Now, #6 - that's the kicker. Most large organizational scholarships are paid directly to the school either at the beginning of the year, or each semester. If you don't tell the school this money is coming and it shows up in Sept., the schools do not look upon this kindly....you tried to pull something over on them - committed fraud when it comes right down to it. They gave you money under false pretenses and you didn't update them, even if you got the outside award after you got their finaid package in April, so they gave you $$$ that could have been given to someone more deserving than you, in their eyes. Depending on the amount of the award and how strict the school's policy is, it's not beyond comprehension that they could yank your whole aid offer, or at least drastically reduce it.</p>

<p>Some local groups - am thinking the local library, women's club, etc. - may just give you the check directly. I can't imagine this amount would be more than $1000 at most, and probably more like a few hundred $$. While they technically count as scholarships just the same as the others, you could probably just pocket this money and use it for books or incidentals...unless the awarding group has some stipulation that they need a receipt of knowledge of the award from the school.</p>

<p>You say you've gotten varied answers from the schools...and this is very true. Each school can set its own rules up on how to blend in outside awards with your finaid. My S's school lets you get up to $5000 in outside awards before they reduce their offer dollar for dollar on anything over that $5000 threshold. My D's school allows $6000, before they reduce at $.50 on the dollar on the overage. You would really have to get the info from each school that you are interested in to make an informed decision on just how far your outside awards would carry you when the schools compare to each other. But it's a nice problem to have! Good luck!</p>

3

<p>Thank you for the detailed reply, beachy. Is there federal regulation covering the school policy section at all? I suppose my specific concern would be your local examples — assuming the awarding organization makes no stipulation that the award must be reported, if they are willing to pay the student directly, is there a legal obligation to report the scholarship to the college?</p>

4

<p>I'm not familiar with any federal regs - that's not to say that there aren't any, though. As to your question - well - a scholarship is a scholarship is a scholarship...the only difference is in the amounts. It really becomes an ethical question, I suppose, whether you report the little ones or not. Am not sure the legal angle applies, as I doubt a school would actually file charges against someone...they'd just adjust their finaid offer downward...probably more severely if large $$ figures are involved in undisclosed scholarships.</p>

5

<p>My daughter won several scholarships. Several of these were paid directly to the school..but two of them were paid directly to her and she was told on one that she could use it to buy stuff for her dorm, books or however she felt it would best be used. These were small amounts though. These are supposed to be reported to the school..but if we had not reported them..the school would not have known..so I guess its a personal choice you would have to make. </p>

<p>As far as financial windfall..it would count according to the tax year it was received. Same with losses.</p>

6

<p>Each school has its own policies as to how outside scholarships are handled for current financial aid purposes. Most do reduce the self help part of the package by the amount and then it cuts into the grants if it exceeds that portion. And most schools do state they require a list of such scholarships.</p>

<p>As to relatives helping out, it would not affect your current year awards but when your fill out FAFSA/Profile/ college forms the following year, they do ask for any other contributions to you, including tuition assistance. So it woud affect you subsequent year EFC. Many times it is recommended for kids who are receiving nice aid packages and have a relative who wants to contribute, to have that relative hold the money until second term senior year for the kid, so that it does not count against subsequent year financial aid awards.</p>

7

<p>From the Student Financial Aid Handbook (web reference at the end of post):</p>

<hr>

<p>In contrast to Pell, you must take other aid into account when awarding campus-based aid or Stafford or PLUS loans. As noted earlier, the other aid that must be considered is called “resources” in the campus-based program regulations, and “estimated financial assistance” in the FFEL and Direct Loan regulations.</p>

<p>In general, the term resources comprises aid from the FSA programs, as well as grants, scholarships, loans, and need-based employment that you can reasonably anticipate at the time you award aid to the student, whether the assistance is awarded by the school or by an individual or organization outside the school.</p>

<p>Examples of resources:</p>

<p>Resources, as defined by the campus-based regulations,
include but are not limited to:
• the student’s Pell Grant eligibility;
• unsubsidized and subsidized Stafford and PLUS (Federal Family Education Loans and Direct Loans);
• long-term loans made by the school, including Federal Perkins Loans (short-term emergency loans are not considered to be a resource);
• grants, including Federal Supplemental Educational Opportunity Grants (FSEOGs), state grants, and Reserve Officer Training Corps (ROTC) living allowances;
• scholarships, including athletic scholarships and ROTC scholarships, and scholarships that require future employment but are given in the current year;
• waivers of tuition and fees;
• fellowships or assistantships;
• veterans educational benefits (paid under Chapters 30, 31, 32, and 35 of Title 38 of the U.S. Code);
• income from insurance programs that pay for the student’s education;
• net income from need-based employment; and
• AmeriCorps funds (national service education awards or post-service benefits under Title I of the National and Community Service Act of 1990).</p>

<p>FROM: 34 CFR 673.5</p>

<hr>

<p>This comes from <a href="http://ifap.ed.gov/sfahandbooks/attachments/Vol3Ch6Sept29.pdf%5B/url%5D"&gt;http://ifap.ed.gov/sfahandbooks/attachments/Vol3Ch6Sept29.pdf&lt;/a> and is the Department of Education's regulatory interpretation. The legislatibe language can be found at <a href="http://a257.g.akamaitech.net/7/257/2422/12feb20041500/edocket.access.gpo.gov/cfr_2004/julqtr/pdf/34cfr673.5.pdf%5B/url%5D"&gt;http://a257.g.akamaitech.net/7/257/2422/12feb20041500/edocket.access.gpo.gov/cfr_2004/julqtr/pdf/34cfr673.5.pdf&lt;/a> which contains the actual law.</p>

8

<p>barkowitz,</p>

<p>Thank you for the very informative resources. I read through the relevant parts of the FSA handbook, including Volume 5 <a href="http://ifap.ed.gov/sfahandbooks/attachments/0405Vol5Ch1.pdf%5B/url%5D"&gt;http://ifap.ed.gov/sfahandbooks/attachments/0405Vol5Ch1.pdf&lt;/a>, and I think I have an understanding of the legal requirements. Please correct me if I'm misinterpreting this:</p>

<p>Addition of outside scholarships causing resources to exceed need by at least $300 require that federal loans be adjusted. This includes Stafford, campus-based loans, etc. but not Pell Grant. The law does NOT stipulate how schools disburse their grant aid, only loans.</p>

<hr>

<p>Is that correct? I couldn't find a specific mention of school grants; it appears that the federal regulations apply only to federally controlled and/or subsized loan programs. This would imply that schools are free to manipulate grant aid as they see fit.</p>

9

<p>Sort of. We must include grant aid as part of the resources, so if any Federal aid is included in the package, grant aid must not exceed need less resources.</p>

<p>Most schools (including the one at which I work) have operationalized this to mean that outside scholarships always impact need, even if the student will be receiving no other funding from the Feds. But you are correct in that there is no Federal law about this. If there is $1 of Federal money in the package, then the law applies however.</p>

10

<p>Thanks very much!</p>