The scholarship penalty is a little known college policy which reduces money available to college students due to scholarship monies they receive. Scholarships are looked at as a common solution to the college funding problem. Scholarships from organizations such as the DAR, Rotary, Wal-Mart, a local church, the Gates Foundation, or other similar organizations make up only 2% to 3% of the money that is available to help send students to college; but from they attention they receive, you would think the amount available would be much higher. But there is a greater problem with external college scholarships.
External college scholarships are those scholarships which a student acquires by applying to an organization other than the college or university the student attends. Internal scholarships (or merit awards) are those funds awarded directly to a student, typically for academic achievement. Internal scholarships are always good and should be pursued at all times. External scholarships have a penalty which is rarely discussed. The standard policy of colleges and universities across the United States is to reduce the financial award the school would otherwise give you by the amount of money in outside scholarships the student receives.
For example: Sally is awarded a financial award package from Big University of $20,000. Sally is a sharp student and applies for several scholarships in her local hometown and receives $5,000 in external scholarship money. Big University then reduces her financial award by $5,000.
Below is an example of the external scholarship policy of Northwestern University in Evanston, Illinois:
This policy’s genesis comes from the requirements of the federal government’s loan programs. If a student is going to get scholarship money, the government wants its loan money back first. The colleges and universities typically piggy-back on top of this federal policy. In other words, scholarships very often gain nothing. They lose as much as they gain. Keep this in mind before you embark on hours and hours of extra work to gain a few thousand in scholarship dollars.
