My daughter has been approved for a Pell Grant. She recently
received notification that she has won a $1,000 scholarship. Will the
scholarship reduce her Pell Grant?
— Virginia M.
The Pell Grant is never reduced when the recipient wins a private scholarship.
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Some forms of need-based financial aid are reduced when a student wins
a scholarship. These include federal campus-based aid, such as Federal
Work-Study (FWS), the Supplemental Educational Opportunity Grant
(SEOG) and the Perkins loan, as well as the subsidized Stafford loan.
Colleges will also reduce their own grants and other financial aid
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Financial need for federal student aid purposes is defined as the
difference between the college's total cost of attendance and the
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student's expected family contribution (EFC), and is reduced by
grants, scholarships and other forms of non-federal student financial
Thus when a student wins a private scholarship, the scholarship
reduces the student's financial need. If the need-based financial aid
package then exceeds the student's financial need, the student is
considered to be overawarded
and the college must reduce the
amount of financial aid to compensate. This reduction in financial aid
is often referred to as displacement
. Some colleges will
reduce the financial aid package even when a student isn't
While federal overaward regulations are often blamed for award
displacement, in most cases the college's own policies control the
displacement. Colleges prefer to reduce their own financial aid funds
to eliminate the overaward instead of reducing federal campus-based
aid. Colleges have the flexibility to choose what forms of financial
aid are reduced. For example, some colleges will reduce need-based
loans first, in which case the student benefits financially by
replacing loans with the private scholarship. But other colleges will
reduce their own grants first, leaving the student with no net
financial benefit from the scholarship.
A form of financial aid is considered to be last dollar
is intended to cover the last dollar of financial need after all other
forms of financial aid have been awarded. Some state grant programs,
for example, require colleges to reduce the state grant first when a
student is overawarded. Some colleges treat their own grant funds as
Most private scholarship programs prefer that the colleges use the
private scholarship funds to reduce the student's work and debt burden
instead of reducing the college's grants. Otherwise, if a private
scholarship is fully displaced by reductions in the college's grants,
there will be no improvement in outcomes for the scholarship
recipient. This makes it more difficult for a scholarship program to
justify the expense to its board of directors.
The Pell Grant program, on the other hand, is one of the few forms of
financial aid that is considered to be first dollar
. The Pell
Grant is never reduced when a student wins a private scholarship, not
even if the student is overawarded. The Pell Grant is based on the
student's EFC, not financial need, so changes in financial need do not
affect the amount of the Pell Grant. (While the Pell Grant is not
based on financial need, it is capped at the difference between the
cost of attendance and the EFC. But the receipt of non-federal student
financial aid funds does not reduce the amount of the Pell Grant.)