i was just thinking about this after reading another post. Sophomore Son in college received a small unexpected $1200 scholarship for this year. Nice. He already has tuition scholarship.
however, this scholarship is a wash basically. it doesnt help monetarily at all.
We received about $1200 back on our taxes last year from AOTC. His new scholarship is made out directly to school, so it’ll basically cover fees, and we wont have much to declare for AOTC credit. However, if this scholarship were to be made to him, and he used it for housing and food, then it would actually be of help.
why wont scholarship donors do this? Its an honor to receive the scholarship, but its of no financial help actually. We try to use our resources as wisely as possible, and i’m curious on why the colleges or donors dont know about this small loophole and benefit as well.
I sat on a scholarship committee which used to make the checks out directly to the kids (small community foundation). Every September we’d get a panicked phone call-- “my mom needed the check to cover our rent- now the college is saying I’m short $2500 and can’t start my classes”, or “my dad’s girlfriend needed me to lend her a thousand dollars so her truck wouldn’t be repossessed and she’d have no way to get to work. So I lent it to her, now I don’t have money for books”.
These kids were all in sad circumstances. But our donors wanted the money to go to kids who needed a bridge between what they could afford to pay and what they needed to attend college. Not to help bail out their families who were in financial distress (although that was painful). Pouring money down the black hole doesn’t help the next generation. Getting a kid a BA does.
If the scholarship is of no financial help, than may I suggest that he politely decline it and ask the scholarship organization to give it to someone else who really could use the financial assistance.
As to why the check is made out to the school and not the student, my guess is that the organization wants the money to be used for academic expenses and not whatever the student feels like spending it on. This is a perfectly reasonable expectation.
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Every September we’d get a panicked phone call-- “my mom needed the check to cover our rent- now the college is saying I’m short $2500 and can’t start my classes”, or “my dad’s girlfriend needed me to lend her a thousand dollars so her truck wouldn’t be repossessed and she’d have no way to get to work. So I lent it to her, now I don’t have money for books”.
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This is very true!
I’ve seen a few Judge Judy episodes where scholarship money was lent to a “demanding family member” and then not paid back. Unfortunately, giving the money directly to the student can cause greedy/needy others to coerce the student into “lending” the money to them only to never get paid back.
Plus, awards diminish “need” so a school needs to know that.
Our foundation was in the business of “bridging the gap”. And giving the money to the student turned out to be a terrible way to do that. I think the students we funded were much needier than the OP’s kids…
I can see the OP’s point if the outside scholarship money is somehow offset with a reduction in school aid. This always bothered me that a school might reduce the money they give you for Fin Aid if you were able to get another scholarship someplace else. To me it takes away from the whole joy of being awarded a scholarship. It reduces the reward. You write an essay to explain all the good things you have done and how hard you have worked. Then a wonderful civic group rewards your hard efforts with a $500 scholarship. They pay the school directly (Which I totally understand) and then the school says thank you very much we will just take that. They offset the school aid with that money and just take it. Just does not seem right to me. The student at the end of the day is no better off. The college is better off because they can then take that $500 and give it to someone else who they feel needs it more. It kind of goes against the intent of the civic group if they intended to reward the student for hard work. What they have done is reward a person the school has now deemed to be worthy.
You are obliged to report the money whether it is paid directly to you or to the school, so it doesn’t matter for MassDad’s example, the school is going to know you received it and adjust your aid.
Schools have every right to set whatever requirements on their own internal aid that they want to set. That is, if they want to reduce their aid to a student if the student gets an outside scholarship, they can do that. If the student were to get a check outside of the normal process - that is, if the student is sent a scholarship check directly - and if that student’s school requires all outside scholarships to be reported, and if the student does not report it … then the student is not following the rules. Any student who receives even a dime of federal aid (including an unsubsidized loan or a Parent PLUS loan) must report any outside scholarships, even if the school does not reduce institutional aid due to outside scholarships. This is because the total of all aid cannot exceed cost of attendance & the school has to know about all outside aid in order for aid to be repackaged if outside scholarships are received.
@bgbg4us We are in the same situation, in that our D has a tuition scholarship that specifically covers tuition, adjusting for tuition increases. So all we claim for AOTC is fees and books.
She also receives a state grant, which she uses towards room and food, so she reports it as taxable income.
You can still claim the same AOTC, for fees and books.
You said this $1200 scholarship was unexpected. If the tuition and fees for this semester have already been paid, you will get a refund. Then that money can be used for housing and food, if your son isn’t living on campus.
He also needs to report it as taxable income on his tax return for the year he received it.
You can only claim AOTC for expenses paid out of pocket. If your son won’t get the scholarship until next semester, then just pay the total amount of fees due on the bill (without figuring in the scholarship), and when the scholarship posts, then you will get the overage refunded to you.
I am also in the same situation as @blossom, I have sat for years on a scholarship committee that awarded a book scholarship. Now the amount is $2000. We used to give it to the student, and it never made it to the school. So we had it sent to the university, and it never seem to make it to the student’s accounts.
We have our students now list what the scholarship would cover: books and supply needs, if they were to win. (Recent students reported that their aid was lowered, so the committee changed their way to award the scholarship). As an an alternate, a gift card to Apple, Dell, HP, or to the student book store, was reported to the student and a notice sent by mail on how to get the card/credit, to cover the cost of laptops and school supplies.
@MassDaD68 I understand what you are saying, that it somehow seems unfair to the student if the school simply reduces the FA by the amount of the scholarship. This takes away the incentive for the student to go apply for the outside scholarship. What many of the full-needs-met schools do is to use the outside scholarship to reduce the student expected contribution first (eliminate work-study requirement), then if necessary reduce/eliminate any student loans included as part of the FA package.
So most of the time, the student is still better off getting these outside scholarships.
thanks – i get most of these thoughts and reasoning. makes sense at schools where grants are given; and it certainly sounds like several donor organizations have been burned. too bad.
In my son’s case - he’s instate at a public school. No need-based aid at all; this scholarship just pays upfront some of what we would have paid in fees and would then get back through AOTC. I dont think he would have turned it down though for the prestige of the scholarship.
So the $1200 pays for something you would have paid for, and since you didn’t actually pay the $1200 you can’t take a tax credit? How is this unfair?
If the check had been sent to you and not used for tuition, books, or fees, you’d have to report it on taxes and count it as income. I do not see a difference whether the check goes to the school or to you. If you want to count the $1200 toward the AOTC, claim it as taxable income to your son.
We don’t qualify for AOTC or FA but DD has a NM scholarship from the school. Most of her outside scholarships were paid directly to the school and they refunded her the amount not used so she could use that amount for books, and personal expenses. She did get one $300 check from the German club paid directly to her and a generous “gift” from the local music society that she was heavily involved in since she was 10 years old, in the form of a gift card. Officially they don’t give college scholarships but can use funds for gifts voted on by the membership. There were no restrictions on the gift card but she plans to use it for strings and required music.
i think i’ll call the college and get the details on how it will show up on the 1098 form the college sends out, and then depending on that perhaps my kid could claim it on his taxes as income. yes, that seems like a good way to maximize this small amount.
too bad.