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Overview:
Laws prohibiting scholarship award displacement have increased throughout the years. Five states have outlawed scholarship award displacement. This week’s newsletter will focus on the similarities and differences between the five state laws.
What is scholarship award displacement?
Scholarship award displacement is when one form of student financial aid (i.e., a private scholarship, external scholarship, or outside scholarship) replaces another form of student financial aid (for example, an institutional scholarship or institutional grant). Depending on the higher institution's private scholarship policy, the private scholarship can also impact a student's federal loan or work-study package. Each higher institution has its own private scholarship policy. Scholarship award displacement impacts need-based recipients. Scholarship award displacement is one of the root causes contributing to the student loan debt crisis. Need-based recipients cannot use their private scholarship funds to fund their gap after federal, state, and institutional aid, as intended by private scholarship donors, causing many students to borrow more or drop out of college.
Background
In the early days of scholarship award displacement legislation, states thought they could only restrict scholarship award displacement at public universities. In 2022, Washington became the first state to limit scholarship award displacement at public and private higher institutions. Through our research, we have learned that higher institutions have used the overawarding federal regulation as a justification to practice scholarship award displacement on students who receive need-based aid. The federal overaward regulation only requires higher institutions to reduce student loans if a student’s financial aid exceeds the cost of attendance. It is institutional policies that require reducing institutional grants rather than student loans. We also learned that many higher institutions are reducing institutional grants, even when a student’s financial aid package is not considered overawarded under federal regulations. Therefore, states have now started to pass laws to outlaw the practice. Five states have prohibited scholarship award displacement.
1. Maryland (2017)
In 2017, Maryland became the first state in the nation to outlaw scholarship award displacement. Michele Waxman Johnson, the lead advocate for the bill, learned about scholarship award displacement through her work in the nonprofit and scholarship field. The law only protects undergraduate students at Maryland public higher institutions.
2. New Jersey (2021)
In 2021, New Jersey became the second state in the nation to outlaw scholarship award displacement. New Jersey was inspired to introduce the bill after seeing the work of the YesSheCanCampaign™ and DISSCHOLARED™. This law protects all students at New Jersey public higher institutions. The law provides several other requirements.
New Amendment Bill - Introduced February of 2023
This month, Senator Troy Singleton introduced an amendment bill to expand the ban on scholarship award displacement to all institutions of higher education and proprietary institutions in New Jersey. The bill also has an oversight, implementation, enforcement, and public awareness component. I will discuss the amendment bill more in the coming weeks.
3. Washington (2022)
In 2022, Washington became the third state to outlaw scholarship award displacement. This law only protects students at Washington public and private higher institutions participating in state student financial aid programs. This law does not apply to public community and technical colleges.
4. Pennsylvania (2022)
In 2022, Pennsylvania became the fourth state to outlaw scholarship award displacement. This law only protects students attending Pennsylvania public higher institutions.
5. California (2022)
In 2022, California became the fifth state to outlaw scholarship award displacement. This law only protects students attending California public and private who qualify for the Pell Grant or state financial aid under the California Dream Act.
Improvements
Although five states have outlawed the practice, improvements are needed. There must be awareness embedded in these laws in order for students, families, high schools, nonprofit organizations, scholarship providers, and higher institutions to know about the laws. The laws must protect all students who receive need-based aid. Oversight and enforcement are needed to ensure higher institutions comply with the laws. States must incorporate a discipline system just in case higher institutions fail to comply with the laws.
Conclusion
The purpose of scholarships is to supplement federal, state, and institutional aid, not supplant the aid. Everyone must be aware of these laws. The fight to dismantle scholarship award displacement continues.
Thank you to the 200+ people who have subscribed to my newsletter thus far. Feel free to reach out with any questions. To learn more about our DISSCHOLARED™ resources, database, events, and volunteer opportunities, visit www.disscholared.org. If you need assistance navigating the practice of scholarship award displacement, please visit www.disscholared.org/consulting.
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