How scholarships work in 5 steps

Scholarships are one of the best ways to help fund the cost of attending college. Why? Because they are considered free aid, so they don't need to be repaid. Students should take advantage of scholarships to help supplement funds needed before tapping into savings or getting funds from other sources they may need to pay back.

Before beginning your quest for scholarships, this article will identify different types of awards, how scholarships work, where to find them and what to keep in mind once you get them.

Step 1: Understanding scholarships

Like grants, scholarships don’t have to be repaid. And while grants are need-based, many scholarships are awarded based on academic excellence determined by a student’s GPA, an essay, or test score. Some scholarships require letters of recommendation or proof of community service, unlike grants.

In addition to academic-based scholarships, there are many other types of awards out there for every type of student. Are you left-handed? There’s one for you. Do you have naturally red hair? Yep. There’s another opportunity. Can you juggle? Leverage that talent! Think about what makes you, you. And chances are, there’s a scholarship to match.

Some of the most common scholarships include:

• Academic: merit-based scholarships awarded to students with academic excellence
• Athletic: awards to students who plan to continue their athletic career in college
• Need-based: scholarships contingent on a student’s financial situation and background
• Chance: lotteries, in which applicants enter a drawing and are randomly selected
• Student-specific: based on anything that pertains to a student’s background. For example, a high schooler attending a vocational school may be eligible for scholarships geared to students at those schools.

Step 2: Do your research

One of the most valuable resources to tap into early is a high schooler's college/career counselor. These professionals are planning experts who can identify the types of scholarships that are exactly right, and which to apply for in the community. Counselors can also help students steer clear of scholarship scams. If the student is in college, the college's financial aid office is another helpful resource, as the advisors there can provide information on the scholarship options available once you are enrolled.

Scholarships are available from a variety of institutions and businesses, so there may be some great opportunities right in your own backyard. Some of the most common grantees include retailers, restaurants, and banks. Another reliable source right in your own network? Your parents or guardians. Check with them to find out if the company or institution they work for offers scholarships.

To ensure that no stone is unturned, there are also several online tools out there for researching opportunities that you can take advantage of for free. You may want to try the scholarship search tool from the Citizens college planning platform, College Raptor®. This site can help you sort through thousands of current scholarships and gives you information about award amounts, deadlines and more. Another great resource are our College Bound Citizens®, a group of experts who host free webinars that address how to maximize scholarship opportunities. Citizens also offers several scholarships with no purchase necessary.* For example, the “Building the Workforce of the Future” scholarship is designed for applicants with varying life experiences or who are part of an underserved or under-represented population.

Step 3: Apply early

Even if a scholarship deadline is months down the road, it's beneficial to apply early. Each scholarship has its own deadline, and sometimes it's a year before you even get to college. A good time to begin looking is during the summer before you start senior year.

Last, but not least, make sure you complete the Free Application for Federal Student Aid (FAFSA) as soon as the application is available to you. Some schools and organizations use the FAFSA to determine your eligibility for grants and scholarships.

Step 4: Determine how scholarship money will be applied

Scholarship funds are usually awarded directly to your college and deducted from eligible education expenses, but some organizations may send a check directly to you. In this case, you’ll need to investigate how the money can be used, as the grantee might have specific rules. Typically, eligible education expenses include the cost of attendance such as tuition and fees for enrollment, textbooks, and equipment for college courses. Read the details of each scholarship you apply for, so you don’t get caught off guard on any restrictions.

Step 5: Maintain your scholarship(s) and check for any requirements

Once you are awarded a scholarship(s), be sure to check on:

• Scholarship obligations: You might be required to maintain specific criteria to keep your scholarship, like enrollment status or a minimum GPA. Some scholarships require that you repay some of the money if you drop out of college or decide to take some time off. Or, in the case of an athletic scholarship, anything that prevents a student from playing, like an injury or poor academic performance, can result in losing the scholarship.
• Financial impact: You're required to report to your college any private scholarships that you received from a company or organization outside of school. This might compel your school to perform a scholarship displacement, or financial aid displacement, which reduces other types of financial aid, like grants or loans. Contact your college's financial aid office and ask about their policies around scholarships.

• Taxes: Scholarships are typically not considered taxable income because they pay for qualified education costs. However, in some rare cases, it's possible to receive more money in scholarships than the cost of your tuition. If this happens, your school might send you a check for the remaining amount. You'll be able to use these funds for other educational expenses, but they will be taxable. These expenses include:

  • Room and board
  • Travel
  • Research
  • Equipment and other expenses that aren't required for enrollment or attendance

  You (and your parents or guardians) may also want to know how scholarships can affect taxes and financial aid packages. Your financial aid office may be able to help with some of these questions. However, it is recommended that a tax professional be consulted regarding any tax liability.

As you continue your scholarship journey, you'll want to find out if your scholarship can be extended. Many scholarships are not just limited to incoming freshmen. So, you may be able to re-apply beyond your first year of college.

Ready to take the next step? We can help

By planning ahead and doing your research, you'll increase the chances of finding scholarships that you're qualified for. And while contacting your school's financial aid office is a critical first step, Citizens has more information about scholarships, student loans and money-saving tips, as well as useful resources, like College Raptor. By looking for ways to reduce the cost of attending college and keeping more money in your pocket, you can focus on the other important aspects of your college journey.