OP, one way to avoid having the college take the scholarship is to pay it directly to the student rather than have it go through the college’s financial aid office. Here’s my story of my two older boys and how incredibly beneficial outside scholarships were to us, a moderate income family of 5 (at the time) earning between 78K (in 2011) and 67K (last year) over the past 5 years.
Both boys attended top schools with very generous need-based aid (MIT and UPenn).
Both boys had a $6000 a year Corporate National Merit Scholarship. Eldest was able to apply it all, and if effectively wiped out loan and work study for him. Middle son was able to apply $5950 (some Penn formula). With that scholarship alone, our costs were absolutely minimal (MIT cost under 10K total for four years, and Penn for the first semester was around $600 out of pocket)
Eldest had several other scholarships. He had a bowling scholarship of around $500 that could only be sent directly to MIT. He couldn’t use it for 3 years, but MIT changed their formula (as @profdad2021 said, complicated stuff!), and he was able to bring it into MIT during his senior year; thus, his senior year at MIT was ridiculously inexpensive. (And my son worked all four years full time in the summer and part time during the school year, and graduated debt free)
Eldest also had two other scholarships. One was a Chess Scholarship that was paid directly to him. He used that to buy a computer and probably saved the rest. He also won a flight scholarship that paid for two round trip flights.
Middle son had two other scholarships, all from Elks Foundation MVS. One for $600 was paid directly to him, and he bought a computer with that, as well. The other scholarship is for $1500, and it’s still on hold. We’ve deferred it, and will hope to defer it again until he might eventually use it. (He’s not returning to Penn)
Having said all that, I can tell you that if my eldest had gone to school here in California, he would have lost his $6000 scholarship because of the way the Cal Grant works with a student’s EFC.
Hope this helps.