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Is This the Beginning of the End for Scholarship Displacement?

Scholarship displacement

In an unprecedented move, Maryland has just ended a policy which has rattled scholarship recipients for years. It became the first state to banish scholarship displacement practices, and other states may soon follow.

After a two-year battle against the practice, executives Jan Wagner and Michelle Waxman Johnson of the non-profit Central Scholarship welcomed the new law that took effect on July 1 and prevents public universities from lowering a student’s need-based financial aid package based on awarded scholarships.

And while scholarship foundations and award recipients rejoice in their victory, the colleges affected by the law weren’t as eager to agree.

Before the law banning scholarship displacement passed, public colleges and universities could reduce a student’s financial aid based on their private scholarship amounts. For example, if a student won a $2000 scholarship, the university would drop their financial aid offerings by $2000.

This is a widespread practice at higher education institutions across the country. Public universities in Maryland, however, will no longer be allowed to engage in the practice.

Scholarship Displacement is Discouraging to Both Students and Donors

Maryland students who experienced scholarship displacement felt they were being treated unfairly by the university, stating that they felt punished for their abilities to receive additional scholarships from other sources. In addition, non-profit scholarship foundations, such as Central Scholarship who spurred the law into action, felt undermined by the university’s decision to reduce a student’s funds because of a scholarship.

When schools reduce the amount of financial aid for a scholarship recipient, that person may have to seek others means to pay for their college expenses, including additional student loans. This means students may have to take on additional debt to scrape up the funds that had previously been awarded to them.

Scholarship displacement is also discouraging for donors who want to contribute to scholarship funds by placing limitations on how much actual value students can receive from a scholarship and how many scholarships can be awarded.

Will Other States Follow Maryland’s Lead?

Despite the controversy surrounding the reduction of financial aid, it’s worth mentioning that most schools reduce the amount of loans it will award to a student first, before reducing the amount of their grants. At least one in five schools, however, will displace the grant portion of a financial aid offer before reducing loans. This displaces any financial benefit the student receives from their scholarship.

It’s disruptive actions like these that heralded the movement to banish scholarship displacement in Maryland. And while the law currently extends only to public four-year colleges and universities, it’s a hard-fought victory that could potentially open doors for other Maryland institutions – and perhaps other states – to join the cause.

Important Caveat

Financial aid counselors at the university argue that not being able to lower a student’s financial aid when a scholarship is awarded prevents them from reallocating the funds to a student who needs it more.

Universities, such as John Hopkins University, claim that when a student’s financial situation changes, such as receiving a free-and-clear scholarship, their financial aid should be re-evaluated to reflect the influx of funds.

However, now that the new law has passed, poorer students who once benefited from other students’ scholarship displacements may not receive the financial aid awards they hoped for because universities will no longer be able to reallocate funds previously derived from scholarship displacement.

That being said, the new law will also prompt more students to make an effort to acquire private scholarships, which could spark a new wave of scholarship competition in Maryland. And it might just be enough for other states to soon follow suit.

Jim Slowik

Jim Slowik strategizes for families of all incomes to leave no stone unturned to reduce college costs. Jim has worked for over 30 years in marketing and management with 20 of those years in financially related industries. As a parent of college students, Jim understands the challenges of navigating the college process. He holds a Bachelors of Marketing from North Central College.

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