California prohibits colleges from cutting aid to students on scholarships

Students who worked hard, got good grades, and applied for lots of scholarships shouldn’t have to worry about losing financial aid for their efforts. Often times, students receive an external scholarship and later find out that the scholarship money and scholarships awarded to them by their college have decreased.

Students should know that if they put in hard efforts in applying for overseas scholarships, they will be able to keep that money without missing out on other forms of financial aid.

Starting next year, California students from low-income families will not have to worry about losing financial aid because they received a scholarship from an outside organization. A new law passed by the California legislature will ban a practice known as scholarship offsetting.

What is Offset Scholarship?

Scholarship offset occurs when a student who is already receiving grants or scholarships from his or her college or university receives an additional scholarship from a scholarship provider. Many schools require that students report any external scholarships to them. Most scholarship providers send money directly to the college or university the student is attending, so it is almost impossible to avoid offsetting scholarships if the school uses this practice.

Schools often reduce the financial aid they provide to a student by the same amount as the money they receive from an outside organization. The schools argue that they are doing this to help stretch limited institutional aid dollars. This process is very frustrating for students and scholarship providers. It leaves the student no better off than if he never gets an external scholarship and wastes the student’s precious time.

How does the new California law help students?

The new California law will prohibit offsetting scholarships for students who qualify for a federal Pell grant or a CalGrant – California Initial Financial Aid Scholarship for low- and moderate-income students. Colleges and universities are only permitted to reduce gift aid (money that a student does not need to repay) that they have given to a student if the student’s total financial aid package exceeds the cost of attending school.

California is now one of five states that prohibit scholarship offsets. Maryland was the first state to ban the practice in 2017. Pennsylvania, New Jersey and Washington have also banned the practice.

Scholarship relay is starting to gain national attention. Representatives Kim (D-NJ) and Kelly (R-PA) introduced the College Law Student Aid Plan earlier this year. The bill stopped short of banning transfer scholarships, instead focusing on requiring schools to disclose their policies on how they handle overseas scholarships.

Providing more information to students is a good thing, but it puts all the pressure on students to be informed rather than on institutions to reform their practices. There is limited research available on the number of students affected by transfer scholarships. One survey found that more than 50 percent of students who received overseas scholarships had their other aid decreased as a result.

The Helping Student For College Act directs the US Government Accountability Office to study scholarship offsets, including the demographics of scholarship recipients. Better data on who is most affected by transfer scholarships could lead to improved policies governing the practice.

Is forgoing scholarships a good thing?

Some commentators have raised reasonable concerns that banning transfer scholarships might harm students from low-income backgrounds. Schools often claim to cut their financial aid when students receive an outside scholarship to distribute limited funds among more students, but this is cold comfort for students who thought they had extra money for tuition and other college costs. It is also worth noting that many overseas scholarships are based on “merit” rather than financial need.

Wealthy students are more likely to receive merit-based scholarships than students from lower-income backgrounds. This raises problems if banning transfer scholarships reduces the flexibility of colleges to move funds from students with few financial needs to students who need more financial support.

Students with the least financial means are the ones most likely to be hurt when their scholarship drains away. On the surface, it might seem reasonable to use offset scholarships as a way to spread limited funds among more students. However, doing so can harm students and prevent scholarship organizations from supporting the students they intend to support. This is a clear example of equal treatment leading to unfair results.

The California law avoids potential issues of reducing schools’ flexibility to help students by targeting qualified students from Pell Grant and CalGrant. Students who qualify for these scholarship programs are generally not from wealthy families and need all the financial help they can get to make college affordable.

There is a growing movement to ban offset scholarships altogether. However, until more states outlaw this practice, many colleges will continue to reduce their awards when a student receives a scholarship. Students are entitled to keep their scholarship. Hopefully, Congress will consider more forceful action than requiring colleges to tell students they may withdraw money if they are awarded a scholarship.

Leave a Reply

%d bloggers like this: