Depending on a student's experience with financing their education, they may or may not know of the term scholarship displacement. This practice consists of financial aid offices reducing federal and university awarded aid after students report outside scholarships to their university.
Critics oppose scholarship displacement because institutional support is essentially replaced with private gift aid, which changes a student’s total aid awarded to practically net zero. Students virtually waste their time applying for outside scholarships since they do not make an impact on their total aid.
All of this rings true at American University, where scholarship displacement punishes students who receive outside scholarships and renders their private awards moot.
This displacement is distinctly harmful to students unaware of this practice and therefore do not have an accurate concept of the actual cost they are expected to pay. Instead, they believe that their gift aid will be added to their original offer letters from the University. At AU, this policy does not apply to all private scholarship amounts and smaller awards are often not affected. Still, larger aid figures impact students considered “overawarded.”
As explained on AU’s financial aid website, “if your total [aid] does exceed your need, then you are considered to be overawarded and your federal and institutional awards will be reduced to make room for the outside awards.”
This evaluation of need coming from FAFSA and the University is often inaccurate to an actual family’s need and is generally the reason students seek out private scholarships and aid in the first place.
The webpage elaborates that the financial aid office will first reduce loans and Federal Work-Study before impacting institutional grants and scholarships. On the side of the University, the argument for scholarship displacement is that students with private aid can fulfill their reported needs from that gift aid. The diverted institutional support can be given to other students. The administration’s excuse of finite resources to provide institutional financial aid is ludicrous considering the University’s $884.31 million endowments.
To paint a clearer picture of how scholarship displacement affects students — imagine a recently accepted student to AU with an institutional grant of $10,000 and a $5,000 scholarship from a private scholarship organization. Upon committing to the University and reporting their outside scholarship, they receive an updated financial aid offer letter lowering their institutional grant to $5,000. In this situation, they only receive $10,000 in total aid, despite expecting $15,000. In most cases, these students must scramble to private loan agencies to cover the extra cost they did not factor into their initial financial plans. In the worst-case scenario, this myth of being overawarded impacts students so that they are left vulnerable to predatory lending schemes or are simply unable to pay tuition. Of course, each situation is more nuanced and complex, but this example points out the discrepancy and consequences between expected aid and actual aid received.
It is essential to recognize that while this practice is not unique to AU, it is not a universal practice in all collegiate environments. As of 2017, Maryland became the first state to limit circumstances where scholarship displacement can occur in their public universities. Other states have extended their initiatives, such as Washington — whose bill never left committee — and New Jersey, whose state legislature successfully passed identical legislation to Maryland in 2021. These laws still allow for the practice of scholarship displacement when gift aid exceeds total tuition costs, or private scholarship organizations provide permission. Regardless, these legislative efforts show initiative towards alleviating this issue for public schools.
With no such law existing in D.C. and AU being a private institution, the University should take responsibility for reforming scholarship displacement to ensure affordability to all students.
Jelinda Montes is a freshman in the School of Public Affairs and a columnist for The Eagle.
