Things You Need to Know Before Signing a Scholarship

Seek clarification if there is something you don't understand.

To receive a scholarship is an honor, but money isn't usually given away without some requirements regarding its use. A scholarship is a legally binding contract. Failure to adhere to the scholarship's requirements means that you could be required to repay the scholarship money, sometimes with interest. You'll want to examine several factors before you sign a scholarship contract so neither you, nor the people who provided the scholarship, are disappointed.

Expenses Covered and Taxable Income

Know what the scholarship funds cover. Many scholarships pay for tuition and fees and stop there. Others provide funds for tuition and fees as well as room and board, computers, transportation, school supplies and research assistance. Be aware that under IRS rules, scholarship money for tuition, fees, books, supplies and equipment is not taxable income, but scholarship amounts for items such as room and board are taxable. Also find out if the scholarship is renewable or not for the following year, and, if it is, the requirements to renew it. Planning ahead will prevent you from not having enough money for the next school year.

Terms of Acceptance

Understand what you are promising to do if you accept the scholarship, and give yourself a reality check. Some scholarship providers expect that you will work in a certain field, such as teaching, or even in a certain location when you graduate. The money might be tempting, but be certain in your heart that you can make the commitment. If not, the consequences can be that you repay the money, and it can be treated like a loan and have interest added. Some scholarships might require you to perform community service during the school year. Truman State University requires scholarship recipients who receive more than $1,250 per semester to perform 60 service hours for each semester of renewal. Students who fail to complete 60 hours face a charge on their student account.

GPA and Credit Hours

Learn the requirements for keeping the scholarship. See what the required GPA for maintaining the scholarship is, as well as the number of course hours you need to complete each semester, typically as a full-time student. Some scholarships require that students keep at least a 2.5 GPA, but others, particularly scholarships for honor students, require a GPA of at least 3.0. Sometimes, the student has to acquire a higher, cumulative GPA over time, such as at the University of Texas Arlington. Also find out what courses meet credit hour requirements. Scholarships typically require that the courses not be taken as pass/fail, but be taken for a grade.

Other Financial Aid

Inquire within the school financial aid office about how the scholarship fits in with other aid you receive. Some schools provide scholarships with the stipulation that the student applies for and accepts other financial aid first, so its scholarship is used only to cover other unmet expenses. As well, if you win a scholarship, federal rules require that colleges reconsider the financial aid offered to you. The school may decide to take away some of the grants but will still provide loans that must be paid back.

The Check

Note whether the scholarship provider will send the money to you or if it will be sent directly to the college bursar's office. Typically scholarship money is sent to the school, but, if not, request to have it sent there to resist the temptation to misspending it. Find out from the contract when the check will be sent, so you can determine its arrival and work to prevent any headaches in registering for classes should the check arrive late.

References

• CollegeData; Using Scholarship Money -- What's Allowed?; 2011
• IRS Publication 525; "Taxable 525 --"Taxable and Nontaxable Income"; December 2010
• CollegeData; Renewable or Not -- A Critical Distinction; 2011
• CollegeData; Scholarships with Strings Attached; 2011
• Truman State University Financial Aid: Scholarship Renewal Information
• Univesity of Texas Arlington: Scholarship Renewal Requirements

Resources

• "U.S. News & World Report"; 7 Things You Need to Know . . . ; Lynn O'Shaughnessy; February 2011
• Internal Revenue Service Publication 970;Tax Benefits for Education; January 2011