UP CLOSE | Dwindling returns

UP CLOSE | Dwindling returns

Scholarship displacement and the struggle to maximize scholarship utility

Published on April 10, 2023

If anyone knows a scholarship success story, it is Rori Reiswig ’25. Starting in eighth grade, after being nominated as a scholar for the pre-college program, she knew that she would have a high chance of winning the Jack Kent Cooke College Scholarship later on in high school. And she did. 

A first-generation, low-income college student — and now a Cooke scholar — she earned $55,000 in annual scholarships for three years of undergraduate studies on top of the full financial aid package Yale provided her as a student whose family earns less than $75,000 annually.

This dual coverage comes with qualifications, though. The Cooke Scholarship only sends Reiswig $3,700 to pay her “student share,” a standardized University estimate for the cost of books and personal expenses and the number all Yale students on financial aid — even those receiving a 100 percent aid package — are expected to contribute to their education. This number does not appear in the term bill. Most large scholarship funds like Cooke are conscious about only providing funding for fees that the financial aid of colleges does not already cover. In Reiswig’s case, Yale would already pay for her tuition, room, board and activities expenses, so Cooke refrained from sending more than $3,700. 

If they were to give Reiswig the full $55,000, Yale would use the scholarship money instead of their own to fund Reiswig’s term bill, which would allow the University to grant more financial aid money to other students. 

This process by which a University replaces their own financial aid funding with outside scholarships is called scholarship displacement. Universities may displace scholarships for the same reason that outside scholarship funds limit their awards to students already receiving 100 percent financial aid packages from their schools — both want to cover tuition for the maximum number of students.

What was surprising was that a lot of the scholarships, colleges and students we worked with did not know about these policies,” Sbeydeh Viveros-Walton, a leader in higher education policy and equity and a director at the nonprofit Public Advocates, said. “Financial aid is something that has a lot of digression, and educating everyone is an ongoing journey.” 

In recent decades, displacement has garnered national scrutiny for the impact it has on financial aid, particularly for first-generation, low-income students. While the overwhelming case is that colleges and scholarship funds share a vested interest in ensuring that first-generation and low-income students can afford an education, ignorance of the nuanced relationship between internal college awards and external grants on all fronts in the higher education system — as well as varying levels of privilege across the nation’s colleges — can prevent students from taking full advantage of the external aid they receive. 

Rori Reiswig ’25, a neuroscience major at Yale completing a certificate in education studies, is the recipient of the Jack Kent Cooke Scholarship. (Tim Tai, Photography Editor)

The refund

Mandated reporting of scholarships to colleges is a result of individual college policies, not federal law or regulations. The only legal requirement on the national level is reporting the taxable portion of an external scholarship, anything in excess of tuition and mandatory fees, to the Internal Revenue Service. 

At Yale, students may be required to complete a Family Information Supplement form after matriculation, which includes a section on outside awards, following matriculation — and for students receiving Yale financial aid, expected outside awards are either indicated in the Yale financial aid application or through a separate Outside Scholarship/Resource Information form. 

Full-aid students like Reiswig who receive outside grants equivalent to or above $3,700 may allocate excess scholarship funds for their $3,700 student share. Along with travel costs, the student share is one of the aspects of a student’s package that is not a direct payment to the University — and it is also the section that outside scholarships contribute to if a student is already on a Yale full ride. Comparatively, a higher-income student who is not receiving aid from the University but has outside awards will have that funding first go toward covering the total cost of attendance and the parent share — and only toward the student share if there is any amount from the award leftover.

For Reiswig, this allocation of scholarships to the student share produces an annual $3,700 refund that appears in the student’s personal accounts, if the option to refund “everything” is selected. Theoretically, the refund is supposed to be applied for those aforementioned indirect costs, but many put it toward travel or other means.

Some full aid students argue that the application of external scholarships, especially those that specifically accept applications from low-income students, should delve beyond the student share to yield a more considerable refund, therefore expanding coverage to accommodate expenses that are not as easily anticipated in a student’s internal aid package.

Lusangelis Ramos ’25, a QuestBridge student receiving multiple outside awards, has to plan out her finances so she can afford necessary medical care for her mental health and chronic conditions, something that she said her “full ride” from Yale does not take into consideration. 

“Disabled people like me are more likely to be low income than non-disabled people,” she said. “As someone that seems to have endless health problems, I am in contact with Yale Health a lot and I have to pay for my Yale Health copays out of pocket.”

In the United States, adults with disabilities live in poverty at over twice the rate of adults without disabilities — 27 percent versus 12 percent. A 2018 article in “Inquiry: the Journal of Health Care Organization, Provision, and Financing” also found that the average annual health cost for a person with a disability is almost five times that of a person without a disability, and that out-of-pocket costs are more than double, at $1,053 versus $486. 

As a student receiving several outside scholarships, Ramos emphasized that there is the added layer of challenge that comes with communicating between all her organizations to ensure that only the necessary amount is sent to Yale to avoid displacement.

Lusangelis Ramos ’25, a QuestBridge scholar, explained that her financial aid package from Yale does not provide ample coverage for her chronic health challenges. (Gavin Guerrette, Photography Editor)

For example, if a low-income student on a full ride from Yale also receives two outside scholarships of $5,000 each per year — for a total of $10,000 — the student will receive an expected refund of $3,700, and the remaining difference of $6,300 goes into reducing or “displacing” a student’s existing financial aid package, which is paid for through internal grants, institutional endowment and alumni donations. The same student would receive the same amount of money if they had asked only one of their scholarship organizations to send Yale $3,700. In the second scenario, however, the scholarship organizations themselves would not lose any money and may then allocate those excess funds to another student. 

Many scholarship distributors, such as the Asian Pacific Islander American Scholarship, Jack Kent Cooke Foundation and the Hispanic Scholarship Fund, send out surveys that request their students’ academic and financial standing for every year that the scholarship could be viably renewed. The questions on these surveys intend to assess what recipients need covered. For Yale students, this may amount to the student share and any additional costs that students have to pay out of pocket. 

The colleges’ perspective

As scholarship organizers defend students who they believe are being undermined in their educational efforts and intensive scholarship searches, colleges argue that displacement permits reallocation of resources to students with greater need and who did not receive external aid. At Yale, the average aid package for students on aid exceeds $67,000, and the number of admitted students receiving Pell Grants has climbed steadily over the years. 

“Our policy is that outside scholarships may replace the standard student share, which is $3,700 for all undergraduate students,” Alexander Muro, the interim director of the Yale Office of Undergraduate Financial Aid, wrote in a statement to the News.

At Yale, students on full aid who receive large external scholarships may apply up to $2,500 toward a one-time technology grant after their scholarships cover the $3,700 student share, he added. 

Referencing the previous example of the college student receiving two outside scholarships, each for $5,000 annually, they may at one point apply $2,500 in outside aid toward a new computer, pair of headphones or tablet, using $6,200 of the total $10,000. The remaining difference of $3,800 would still go toward reducing the student’s aid package from Yale if the student reported the scholarships to Yale.

It is important to note that the technology grant and student share coverage from external scholarships is liable to taxation. According to Muro, all grants and scholarships “in excess of tuition and mandatory fees are considered taxable income.” While students do not have to pay taxes on scholarships that cover tuition, costs such as the student share and room and board do not fall under the “mandatory fees” category, so external scholarships used to pay for those expenses are taxable. 

The University offers limited support for students navigating taxation. Muro said that he is not a tax professional and is thus unable to provide in-depth tax advice. 

When Reiswig asked representatives from the Financial Aid Office about what parts of her financial aid were taxable, she was told to speak to a professional in the area. The Yale Student Employment website affirms that while there is no personal assistance at Yale for students filing taxes, the local IRS office located at 150 Court Street can assist students in preparing returns. 

“I don’t understand exactly what we’re supposed to pay taxes on and what we’re not, so I will be submitting my documents and hoping for the best,” Reiswig wrote in an email to the News. “I understand if they’re not legally allowed to give tax advice, as was the implication of their comments, but it would be really helpful if they gave students a [more comprehensive] list of resources … to help us navigate.”

Safety Net

University policy requires students submit a receipt to receive the $2,500 technology award. Other financial aid supports such as the winter clothing grant offered at the Yale College Dean’s Office and Safety Net, an emergency funding option through the Yale College Dean’s Office, follow a similar model. Students must first pay for an item out of pocket and then submit an official receipt for reimbursement. For students who cannot immediately afford the overhead cost, this is a burden. 

Reiswig explained that this delayed reimbursement usually isn’t an issue, but that more time-sensitive expenditures can exceed what a student can afford, especially for individuals who lack the capacity to pay for large costs. The process has created difficulty, for example, for low-income students moving off-campus — since refunds can arrive much later than deadlines for security deposits.

“I’m lucky to be in a position where I don’t have to worry about navigating many different scholarship sources and how they come together, but I would say that my greatest challenge has been with the timing of the refund,” Reiswig added. “Yale’s estimated travel cost doesn’t include getting to college in the fall, and I don’t usually receive my [$3,700] refund until a few weeks into the school year. It can be difficult getting what I need at the beginning of the year before it comes in.”

Reiswig is not alone. For students like Harvey Lloyd Picar ’25, a roundtrip airline ticket to his home in Hawaii runs up to hundreds of dollars and can cost close to a thousand when booked at the last minute. When his sister, Harlene, suddenly passed away in October 2022, Picar had to travel back and forth from Hawaii several times while fall semester was still in session. 

Picar, who receives both full aid and a Gates Scholarship, turned to a representative from the Yale Financial Aid Office to see whether his scholarship could fund his travel home. The official told Picar that while he could request coverage, he would not receive the funding until the following year. 

But Picar needed the money right away. 

After the unexpected loss of his sister, Harvey Lloyd Picar ’25 encountered difficulty receiving immediate support from his external scholarship. (Tim Tai, Photography Editor)

Ultimately asking a cousin to cover his first round trip between New Haven and Hawaii. Then he learned about the University’s Safety Net program, which covered the full cost of his second trip home — this time, to attend Harlene’s funeral. For “emergency” requests, Safety Net reimburses funds within 24 hours. Between 2018 and 2019, around half of all requests were resolved with funding or a loan of equipment. 

The funding arrived at a critical moment for Picar, who suggested that outside scholarships should consider a similar model for supporting first-generation, low-income students through unexpected expenses, especially if scholarship displacement prevents students from otherwise taking full advantage of their resources. 

Some students have not had nearly as successful of an experience with Safety Net, but agree that its support is a fast solution to immediate problems confronting low-income students whose financial backgrounds lack the stability of higher-income households. As an individual with chronic health conditions, Ramos wished that either her “full ride” from the University or the Safety Net could cover her medical visits. 

“Essentially a situation that I have encountered is being denied Safety Net funding and being explicitly told that it’s because I had already received significant funding via Gates or outside scholarships,” Gates scholar and first-generation, low-income student Kimberly Wenceslao ’23 wrote to the News, recalling a time when she requested funding after her laptop had broken down. “Definitely understand their stance … [but] my expected family contribution was zero and I’m from California, so a big part of my refund was already used for flights.”

Safety Net’s email to Wenceslao revealed that its assessment of her situation was completed in conjunction with Undergraduate Financial Aid — and that her financial standing, though “indeed challenging,” was stronger than her peers who were being considered for this limited fund. The document then stated that the “limited fund” would be subsequently used for students who have “lesser access to university funds or personal resources.” 

Senior Associate Dean of Yale College Burgwell Howard reiterated this position in a February interview with the News. 

“In general, there are no hard criteria for which requests receive Safety Net support, as the details of each request and each student’s situation are different,” Howard said. “The driving factor in these requests is generally demonstrated financial need, and even among FGLI and non-low income students there is great variance in people’s financial situation. So, we seek to address the most critical and unanticipatable issues and expenses as quickly as we can, with input from Undergraduate Financial Aid and other key stakeholders who may have information or input.”

Muro affirmed that the Financial Aid considers outside scholarships — and the refunds derived from them — when determining Safety Net requests. However, he explained that the “mere presence” of outside scholarships is not an immediate disqualifier for Safety Net funding, due to the “holistic” nature of the evaluation. 

He added that the team makes a distinction between outside scholarship monies already received by the University versus those in a pending status, “since the former is immediately available and [the FA office] only mentions refunds if one is available.” This difference can cause students to not be aware of a credit balance on their account or the means to access a refund, but it is something that the office can guide students through, Muro said. 

While grateful for the refunds that Gates provides, Wenceslao agreed with Ramos that the perception of outside scholarships conferring “significant funding” for low-income students with a full Yale scholarship can be a distorted one. She suggested that heightened communication between students and donor organizations may open other avenues of use for excess outside aid — and looked back on a point when her family’s expected family contribution had exceeded $0, resulting in an unexpected and significantly reduced refund from Yale. 

For Wenceslao, the first-generation, low-income experience is continuous and fluctuating — and these moments have only attested to that. As a second-term senior reflecting on her time here at the University, she has found a way to see value in everything from the frequently difficult communications with administration to the hours spent pouring over family finances thousands of miles away from her California home. 

The struggle against displacement, and the consideration of privilege 

The road to maximizing the utility of external awards is far from over, but efforts have been promising. As a result of displacement, some scholarship organizations allow students who will already have their education subsidized by their universities to withhold accepting their scholarship funds until that money is useful. 

Oscar Sweeten-Lopez, the leader of the Dell Scholars Program, announced in 2017 that its scholarships will give students experiencing scholarship displacement the choice to defer their funds until they graduate, when they can collect all their funds at once and pay off loans or attend graduate school. 

“One piece of advice that I give students who will likely experience displacement is to ask their outside scholarship provider if they could defer their scholarship to a later year in undergrad — as freshmen tend to have more generous packages — or [to] graduate school,” agreed Senior Financial Programs and Scholarship Director Nadja Jepsen of College Track, an education nonprofit that supports underserved students through college scholarships and mentorship.

According to Jepsen, who credited her own ability to obtain a graduate degree to an outside grant, the decision of whether to permit fund deferral is largely based on a scholarship’s mission statement. For example, she said that if a scholarship supports first-generation students earning a bachelor’s degree, they would likely be less receptive to deferring funds to graduate school education. Nonetheless, she urges students to research scholarship providers and the specific colleges that they plan on attending.

During her time working with students as a scholarship provider, Jepsen observed that private colleges tend to be more flexible with their institutional aid than public universities. 

The full tuition coverage that low-income students receive at many of the nation’s top colleges is rare; schools like Yale and Dartmouth College have eliminated loans from their financial aid award packages, guaranteeing students whose families fall under a certain income threshold a debt-free college education. 

The same does not hold true for financially disadvantaged students at public, state or even private colleges with smaller endowments. In fact, over the past decade, many schools have raised tuition prices for families on the lower end of the socioeconomic spectrum at a higher rate than those on the higher end, even though low-income students generally receive larger financial aid. 

For low-income students who find themselves in these situations, private outside scholarships can reduce loans and push them toward a more debt-free future. At least, that is what students might expect. It turns out that Yale’s own scholarship displacement policies, which only apply when a student has excess outside aid, is in itself a privilege. 

For some colleges today, scholarship displacement is more extensive and occurs for students whose awards do not exceed their need. Instead of using outside aid to reduce a student’s loans or issue a refund, a college might reduce the amount of financial aid its internal system had awarded the student. This practice incited a two-year long anti-scholarship displacement campaign from Central Scholarship, a scholarship and mentorship organization for Maryland students, whose staffers were frustrated that any scholarship money a student received would cause their college to simply reduce their financial aid by the same amount.

“It totally undermines our very existence,” Jan Wagner, president of Central Scholarship, said in a 2017 interview with Baltimore Sun. “For someone who went out and beat the bushes and pounded the pavement and submitted applications to try and get additional grants and make college affordable, the net result of their efforts is zero. That’s unfair. Especially when we’re talking about low-income and middle-income students.”

Connecticut is among the 45 states without active legislation banning scholarship displacement. (Tim Tai, Photography Editor)

Until summer 2017, nowhere in the United States had officially banned this kind of displacement. Today, colleges in five states — California, Maryland, Pennsylvania, Washington and New Jersey — have passed some requirements forcing schools to reduce a student’s loan packages, if they have any, before decreasing internal scholarship allocations. For instance, California’s AB-288, an anti-displacement bill passed in September 2022, prohibits both public and private institutions from cutting down Pell-eligible “students’ institution-based gift aid offers below their financial need.” 

Connecticut is among the 45 states without active legislation banning scholarship displacement. Title IV of the Higher Education Amendments of 1965 outlines policies underlying the management of financial aid programs. It dictates that a student’s awards — whether they consist of university grants or outside scholarships — may not exceed one’s financial need. The law defines need as the difference between a college’s standard cost of attendance and the amount that the financial aid office believes a student’s family can pay. Essentially, Title IV prohibits students from pocketing scholarships or grant money that exceeds their need for a college education — which some argue is an issue that is nuanced and requires more consideration of the real-world challenges confronting FGLI students. 

“The real cost of attendance is different from the formula provided in the FAFSA or college financial aid award letters,” Viveros-Walton, one of the writers and thinkers behind AB-288, said. “And in California, that gap can be anywhere from $9,000 to $30,000.”

Viveros-Walton called attention to off-campus housing for California students, which in cities like Los Angeles and San Francisco can drain most of a student’s refunds and financial awards. Similar to Yale, many colleges in her state do not guarantee housing for all four years of their undergraduate education — except in California, many are thrown into a more voracious open market with external adult renters. 

However, some scholarships have restrictions dictating what their funds may be used for. Some scholarships may not cover off-campus housing, presenting a challenge for students who are not guaranteed on-campus lodging. Viveros-Walton hopes that by urging scholarships to expand their latitude of coverage or disperse funds directly to recipients, students would be able to put their hard-earned awards to better use. 

Nonetheless, these are only recommendations — and private scholarship organizations ultimately decide what they wish to dedicate scholarship dollars. The struggle to make financial aid and scholarship processes equitable, transparent and accessible is one of many moving parts and perspectives, requiring as much empathy as education from all sides of the equation, she continued. It remains, now more relevant than ever. 

Starting the 2023-2024 academic year, Yale University’s overall cost of attendance, otherwise known as its term bill, will increase by nearly 4 percent from $80,700 to $83,880. 


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