Complete Guide to Scholarships for College

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Kristen Kuchar

By Kristen Kuchar

November 4, 2020

Scholarships are free money to help you pay for college. You do not need to repay a scholarship. 

In the Sallie Mae study, How America Pays for College, 73% of families relied on scholarships and grants to cover part of the cost of college in 2019-20.

Scholarships can come from a school, professional groups, religious groups, community organizations, nonprofits, social organizations, and more.

Scholarship can be based on your academic achievement or a specific talent, such as an athletic or music ability. You can find scholarships based on ethnicity, gender, religion, where your parents work, what your chosen major is, and even for specific characteristics, such as being left-handed.  

The amount of a scholarship varies greatly. It could be a few hundred dollars, or it could pay for your entire college cost. Only about one in eight college students has won scholarships, averaging about $4,200. 

Scholarship Tips

Fill out the FAFSA. The FAFSA, or Free Application for Federal Student Aid, is how you are eligible to receive grants, federal student loans and student employment (work-study). Many people don’t realize that completing the FAFSA is also how many scholarships are awarded from the college. In fact, many colleges require you fill out the FAFSA to be considered for a scholarship or grant.

Apply for as many scholarships as you can. Applying for more scholarships increases your chances of winning one. 

Read the requirements. Don’t waste your time applying to a scholarship you don’t qualify for. A scholarship may require a specific GPA or that the student is pursuing a specific field. A scholarship may require writing an essay or a letter of recommendation.

Follow the directions. If you’re taking the time to apply for a scholarship, be sure to follow the instructions. Give accurate, complete information to avoid your application getting tossed out.

Start early. Don’t wait until you receive your award letter to start applying for scholarships. You can start as early as freshman year of high school.

Keep applying. Many students make the mistake of only applying for scholarships when they start their college journey. However, there are many scholarships out there for upperclassman. Continue to search and apply for scholarships throughout college. 

Do Scholarships Impact Financial Aid?

If a student receives a scholarship from an outside source, it can potentially reduce the amount of financial aid they qualify for (grants, federal student loans, and work-study). This is also referred to as Scholarship Displacement

If this happens, you can ask your college to reduce the amount of federal student loans you are awarded instead of grants.  

Do I Pay Taxes on Scholarships?

Scholarships for tuition and textbooks are generally tax-free, if the student is pursuing a degree or certificate. However, scholarships where the money is used for room and board, transportation and other living expenses are taxable. The taxable portion of a scholarship is reported by you as income on your federal income tax return.

Use our Scholarship Tax Calculator to figure out the taxable amount of your scholarships and calculate how much you’ll have to pay in taxes. 

Scholarship tax calculator

What’s the Difference Between Scholarships and Grants?

Both scholarships and grants are thought of as “free money” for college. There are some key differences between the two. Grants are need-based, given to students who demonstrate financial need. Scholarships are merit-based, and anyone is eligible to receive a scholarship.

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How Do I Know if a Scholarship is Legit?

Unfortunately, there are many scholarship scams out there created in hopes to get a student’s money or personal information. Here’s what to keep in mind:

  • You should never have to pay to apply for a scholarship, including application fees, administrative fees, or processing fees. 
  • You don’t need to provide a Social Security Number, a credit card number, a bank account number or any other personal financial information to apply for a scholarship.
  • While scholarships are taxable, students do not pay the taxes to the scholarship provider.
  • Another common scam is a scholarship provider sending a check for more than the amount of the scholarship and asks you to refund the difference. The original scholarship check is a forgery and will eventually bounce. 
  • You also don’t need to pay for a scholarship search. There are many legitimate places to look for a scholarship for free.

What Happens to My College Savings if I Win a Scholarship?

If you are in the wonderful situation where you have money in a 529 college savings plan and win a scholarship, you can take a non-qualified distribution from the 529 plan, up to the amount of the scholarship, without having to pay a penalty. You can also use a 529 plan to pay for qualified expenses that a scholarship may not cover, such as transportation and room and board costs. 

How to Find Scholarships

If you’re in high school, ask your high school counselor for additional resources.

If you’re a college student, ask the financial aid department how to locate scholarships at your school.

  • Community organizations, including civic organizations
  • Ethnicity-based organizations
  • Religious organizations
  • Local businesses 
  • Your state’s grant agency
  • Organizations and professional associations based on your major and career path
  • Your employer 
  • Your parent’s employer 

Upromise is an online platform that helps families save for college. You can register for free, and earn cash back towards college by shopping online through their links and registering your credit cards and dining at participating restaurants. They also award one member every month with a $529 scholarship, automatically. Sign up for free.

Many student loan providers even sponsor a scholarship, including AscentCollege AveDiscoverEarnestPNC BankSallie Mae and more.

These web sites offer free scholarship search services:

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At, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.

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