Unknown Facts About Scholarships
Facts About Scholarships You’ve Never Heard
In Lesson 1 of my class, we begin with a college choice and part of this decision is knowing facts about scholarships. For those who choose to attend college, most students include a scholarship as part of their funding plans. Parents have been led to believe that a scholarship is both lucrative and easily attainable. Both are false assumptions.
The truth is that most scholarships are small and the bulk of the financial burden of college will fall on the parents and/or funded through loans.
Since this is a hard truth, I think it best we face reality now while there is still time to make a plan.
FACT #1: You are likely to be the major source of the money used to pay for college
For years, families have heard that “most” college students receive financial aid. While that statement is technically true, the facts about scholarships and financial aid paint a more nuanced picture. College funding generally comes in four forms: grants, scholarships, loans, and work-study.
Grants and scholarships are often described as “free money” because they don’t need to be repaid. However, one of the most important facts about scholarships is that, combined with grants, they typically cover only about a quarter of total college costs and are frequently awarded based on specific criteria such as income level, academics, or background.
That leaves students and families responsible for the majority of expenses. Loans can help fill the gap, but they come with long-term financial consequences. Work-study is often misunderstood as a major solution, yet average awards are relatively modest and rarely make a meaningful dent in overall tuition and living costs.
FACT #2: Your student will probably not get a full-ride scholarship
Just to put it in perspective, there are more than 80,000 valedictorians and salutatorians each year. Thousands of students get a perfect score on the SAT and ACT each year. Tens of thousands of students get at least a 1500 on the SAT and a 33 or better on the ACT. So, what does it take to earn a scholarship? Each scholarship is different but generally, there is a strong grade/test correlation.
17.0% of students with a 3.5 or higher GPA win private scholarships, compared with 13.1% of students with a 3.0 to 3.4 GPA, 10.4% of students with a 2.5 to 2.9 GPA
12.9% of students with a SAT score of 1,000 or more win private scholarships, compared with 7.8% of students with a SAT score under 1,000. 12.4% of students with an ACT score of 21 or higher win private scholarships, compared with 7.7% of students with an ACT score under 21.
The raw odds of winning a scholarship are about 1 in 8 for a student in a Bachelor’s degree program. Sounds great, right?
What they don’t tell you is that 97% of scholarship recipients received $2,500 or less in scholarships.
To see what kinds of scholarships are out there for your student, go to: https://www.careeronestop.org/toolkit/training/find-scholarships.aspx
FACT #3: Those hoping for athletic scholarships are in for an eye-opener
Fewer than 2 percent of high school student-athletes are offered athletic scholarships and most of those athletic scholarships are not full rides. There are only a handful of sports that even offer full-ride scholarships, while the rest of the sports spread out the money they are given for scholarships to multiple participants leaving the bulk of the tuition funding to the parent/student.
If your student-athlete is one of the lucky few to get an athletic scholarship, please know that the contracts are for one year and may not be renewed due to injuries, change in coaching staff, poor performance or low grades.
FACT #4: When you get financial aid, it is only for a year
If your student does receive a financial aid offer, know that the offer is for one school year and you will apply for a renewal of financial aid each year with the FAFSA form. Financial Aid approval is based on income and academic standing, factors that are reviewed each year. Therefore, if the college your student has chosen is a stretch for you or is impossible without financial aid, you should think through the decision with the understanding that the full cost may fall back on you.
FACT #5: Even those with “high incomes” can (and should!) reduce the price tag of college
The financial aid world is not all doom and gloom. While we have already determined that the cost of college likely won’t be fully funded, there is no reason to assume that you will have to pay the full cost either. Parents have a tendency to underestimate eligibility for need-based aid and overestimate eligibility for merit-based aid.
While those with “high incomes” will not qualify for Federal Grants, they might qualify for Institutional Grants. For example, almost a third of students whose parents earn six-figure salaries received institutional grants. You won’t know until you try and it is easier than ever to fill out the FAFSA form online.
FACT #6: The best loans are need-based federal loans
Federal Student Loans are awarded based on the information you provide in the FAFSA. The advantages of federal loans are:
Determination is not based on credit score
Current income is taken into consideration at repayment time
Many federal loans have a forgiveness component.
The type of federal loan you get (subsidized or unsubsidized) is based on need. Need-based federal loans are called subsidized loans and they have better terms than unsubsidized loans as they do not accumulate interest during the college years.
While it is a bit complicated, generally Undergraduate students can borrow up to $12,500 in federal student loans. In addition to an interest rate of approximately 5%, these loans also include an additional 1% loan fee. When approved, the loan money goes straight to the school. Upon graduation, the student will have a six-month grace period before the first bill arrives.
If a student is forced to take on student loans, they should aim to borrow an amount that will keep their payments at around 10% of their projected after-tax monthly income. For example, if the student expects to earn an annual salary of $50,000, the student loan payments shouldn’t be over $279 a month. For more information on this calculation, check out this article which features an affordability calculator.
I know that I sound like “Debbie Downer,” but the truth is, I learned a lot when my son graduated high school and we entered the murky world of financial aid and learning all the facts about scholarships. I want you and your student to be prepared for the reality ahead so that you both can make wise decisions early enough to be ready. The good news is this: "The more aware you are, the better prepared you are."
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About Beyond Personal Finance: Beyond Personal Finance gives teens (middle & high school) the chance to design their future to see if they can really afford the life they dream of. In one semester (20 lessons- less than 2 hours per lesson), your teen will choose (and budget for) a career, car, apartment, spouse, house, investments, and so much more. This is the class your teen will get excited about.