Jonathan Hughes: [00:00:00] This is part two of the conversation I had with Shannon Vasconcelos from Bright Horizons College Coach about scholarships, and if you missed part one, go ahead and check it out now. In part one, we talked about scholarships from colleges and how you can get the most out of them. In part two, we’ll be talking about what most people, I think, tend to think of when they hear scholarships, and that is outside scholarships from outside organizations, whether that’s local or national.

We’ll talk about how you can find them, what they may look like, and how they may affect your financial aid. So let’s take a listen. So I feel like we’ve covered college scholarships or that is scholarships from the colleges and universities- Yes … pretty [00:01:00] extensively. L- let’s turn to private scholarships or outside scholarships.

Shannon Vasconcelos: Yeah.

Jonathan Hughes: Any tips on finding those? How can students do that?

Shannon Vasconcelos: Yeah, and it can be overwhelming if you just, Google the word scholarship, you’re gonna have millions and millions of results. It’s “Where do I start?” I would focus on scholarships that are really the best fit for the student-

That will have a narrower applicant pool. So you’re winning some of those big national scholarships that are out there really can be akin to winning the lottery because they get so, so many applicants. They’re just really hard to win. And students who focus on those scholarship, occasionally someone will hit the big one, but a lot of students just end up putting a lot of time into those applications with little to no return on that kind of time investment.

So what I would do is really start local. Start, in your [00:02:00] town where the applicant pool is automatically narrowed down for you. Just students in your town can apply, you’re not competing with thousands of students all across the country. So those can be, again, scholarships from things like the Elks Lodge or the Lions Club, or maybe you as a high school student are working and your employer offers a scholarship, or your parent’s employer offers a scholarship.

Sometimes employers will offer scholarships for dependents of their employees. Maybe it’s your house of worship. Any of those sort of local connections can be good places to find scholarships. Usually they’re not for huge amounts, but they tend to be easier to win than any kind of big national scholarship that you find online.

So check again with any of those places you have connections to already. Check certainly with your high school’s school counseling office. Your … They may use a s- piece of software, college planning software where they just have a list of all the local [00:03:00] scholarships you can apply for. That’s where I would start in terms of private scholarships starting very locally because you have the best chance of winning those scholarships.

If you do decide you’ve got the bandwidth to expand out, do some of those more national online scholarships applications, I would think about as a student kind of what makes you more unique. Think about those sort of characteristics that you have that somebody might be awarding a scholarship for.

So think about things like is there a military background in your family? Is … Do you have a certain health condition or is there a health condition in your family that has like organizations that support folks with that condition? Are you a vegetarian? Are you an amateur fashion designer?

Like those things that might make you a little bit more unique There very well may be a scholarship out there for folks that have that kind of characteristic, and because they’re more narrow, [00:04:00] it’s g- they’re gonna have a smaller applicant pool. If you think of it like the vegetarian example, there’s only a certain subset of the population that are vegetarian, so you’re not competing with every kid all across the country.

Those scholarships where the only qualification is you have to be a good student, they’re just gonna get thousands and thousands of applicants. Very hard to win. So I would think about the scholarships that have that sort of narrower applica- applicant pool where you’re gonna have a better chance of winning.

Jonathan Hughes: And what do you think about paying to apply for a scholarship?

Shannon Vasconcelos: Normally a red flag. I would say if a scholarship application has a fee or they’re asking you for credit card information, good possibility that it’s a scam, and I would walk- Yeah … away from it. Yeah. The only sort of exception that has popped up in my experience i- are scholarships from professional associations, like I’m making this up, but it might be like the [00:05:00] Association of Certified Public Accountants.

Or whatever it is, and sometimes they have student memberships, and they might offer a scholarship for students studying accounting, but you have to be a member of their association to apply for it, and there may be a membership fee. So that is the one exception that I’ve come across with scholarships from professional associations where maybe you have to pay a fee to be a member and you have to decide as the student or the, the family is that association fee, membership fee worth it to you?

Do you get other things maybe other than being able to apply for that scholarship, and make the decision from there. But for… That’s the really, the big exception that pops up in my mind. Most scholarships, if they’re asking you to pay, I’d walk away.

Jonathan Hughes: Okay. So next question I have, and this is one that, you know, again, a surprising number of students have started to ask me about when I talk to them, [00:06:00] and it’s a complicated topic, and it’s a sort of sticky wicket, but I’ll ask.

I’m dying to know what you have to say about it. Will getting private scholarships, outside scholarships impact your financial aid from a college? And what do you have to say about that topic?

Shannon Vasconcelos: It can. Yeah. And this is probably… We could probably do a whole segment on this. So I’ll tr- try and put it as succinctly as I can, though that is not my strong suit, first of all, I would say outside scholarships usually are not gonna impact merit scholarships from the school. Usually you can get cuts or one on top of the other. Limited instances where you- A school might pull back on their mer- if they’ve got, offered you like a full merit scholarship that covers everything and then you bring in outside scholarships, maybe they pull back because they don’t want to award you more total than the entire cost of the school.

But usually that’s not the case. Usually [00:07:00] merit scholarships from the school and outside scholarships are stackable. You can get them both. Need-based financial aid is a different story potentially, and this certainly comes as an sometimes unpleasant surprise to families where they as- assume that they will be able to keep whatever need-based financial aid package they’ve been awarded from the school and any outside scholarships they win will just be added on top of that.

Unfortunately, that is often not the case because colleges cannot award you or you cannot receive in total aid, including outside scholarships, more than you need according to the need-based financial aid calculations. So there are some instances where you receive a certain need-based financial aid package and then the school finds out that you are receiving an outside scholarship, and your need-based [00:08:00] aid package is reduced to make room for that outside scholarship.

This can happen. I, and often when families learn this they’re like, “Why did I ever even apply for any outside scholarships? It was totally pointless.” And I will say- It is usually not the case that it is pointless. Usually winning outside scholarships does help you even if you are receiving need-based aid because there- one of three scenarios could play out, and this is where I’m absolutely not being succinct, Jonathan, but-

Jonathan Hughes: It- it’s hard… it- it’s almost impossible to be on this question. But yes.

Shannon Vasconcelos: Totally.

Jonathan Hughes: This is what I want to know. This… because I-

Shannon Vasconcelos: Yeah.

Jonathan Hughes: So- … have questions about this, yeah.

Shannon Vasconcelos: Yeah, so there is this scenario, and this is extremely common, probably the most common scenario, where a school may have awarded you need-based financial aid, but they did not meet your full financial need.

I… again, I think this is probably the most common [00:09:00] scenario in need-based financial aid packages. Most schools don’t have enough money to totally meet every student’s need completely, so there is a gap there between what they’ve awarded you and what your need is. If there is a gap there, the outside scholarships can just fill in the gap.

You lose nothing in your financial aid package. You keep your whole package and the outside scholarships. You are all good. That is probably the most common scenario. Then there is a scenario where the college has awarded you need-based financial aid to meet your entire need. Now you pull in an outside scholarship.

They say there’s no room for that outside scholarship. We have to reduce your need-based aid package

most times when that happens that need-based aid package includes student loans, maybe work study that you have to work for and earn the money, and if a college has to reduce a need-based aid package, they will typically look to reduce student loans, work study first before they touch [00:10:00] any need-based grant that they have awarded you, before they touch any free money.

So if that’s the case, they have to reduce the student loan. You’ve now r- replaced this loan that you had to pay back with interest probably with a scholarship that is totally free money. So that is good for you as a family. That is a good situation. And then it is only the third situation where a college…

You had financial need. College totally met your need totally with grant money, no student loans, no work study, where if you win an outside scholarship, now you’re over-awarded. The school has to reduce your financial aid package. They would have to reduce grant money, free money if that’s all you have, and now you’ve replaced one form of free money with another form of free money, and you really didn’t benefit.

That is the one situation where it doesn’t help you to win an outside scholarship, but that is by far the rarest [00:11:00] situation. Yeah. That very rarely happens. So almost all the time it is still worthwhile to apply for, win outside scholarships ’cause they will still benefit you. Even if it might impact your financial aid package somewhat, it still benefits you in the long run.

Jonathan Hughes: That was what I thought was the case, so I’m glad to hear you say that’s your read on it as well. Yeah. Now, question that kind of bridges my appearance and your appearance on our show: if you have money in a 529 and you get a scholarship and you can’t use that money, that 529 money that is, the way you’ve intended because of that scholarship, what do you do with that 529 money?

Shannon Vasconcelos: Yeah, and that I think is… I’m sure you run into this too, Jonathan, it’s sometimes a fear of- families may have about opening a five tw- 29. What if my kid gets a scholarship? Then do I lose all this money in my 529?” And the answer to that is no. You do not. So if you… The normal thing that happens if so [00:12:00] 529 you get the earnings of the account tax-free if you use the money for college.

If you use the money for something other than college, you have to pay taxes on the earnings plus a 10% penalty for misusing the fund. But if the reason you’re withdrawing this money is because your kid got a scholarship and now you can’t use this portion of your 529 they waive the penalty in that case.

You can withdraw up to the amount of the scholarship each year, and you will have to pay taxes on the earnings that you withdraw. So you do lose that benefit of the 529, but you don’t have to pay the extra penalty. So a fine thing to happen. You don’t have to use… You can pull out that money, use it for whatever you want.

You gotta pay the taxes but you’re not losing anything additional in the case of a scholarship. The other option is just leave the money in [00:13:00] the 529, save it for either a future year for that student- potential graduate school down the line for that student, or you can change the beneficiary of the 529 down the line or transfer it to a sibling’s 529.

So within the family, you can use the money for another person. That way you can keep the tax break and everything if you just use it later on down the line.

Jonathan Hughes: So speaking of taxes then, and I know that there are tax questions relating to scholarships on the FAFSA, which leads to a lot of questions, are college scholarships taxable?

Shannon Vasconcelos: I would say in most instances, no. But in some instances, yes, of course. The answer to everything in our world, Jonathan, is it depends. It depends. This is an it depends question. So scholarships that are not taxable are scholarships that go towards tuition, fees, books, supplies, equipment.

So any scholarships that sort of fall under paying for those things, [00:14:00] you are A-okay, not taxable. Scholarships that may be taxable are those that go towards food and housing- … transportation, Those given to you in exchange for research, teaching, other kinds of services that are more like you’re working a job and getting paid for it more than it being, like, a true gift sort of scholarship.

So I would say in most instances they’re not going to be taxable. Most scholarships are small enough that they are falling under the amount of tuition, fees, books, supplies, equipment, not taxable. It’s m- most often I see them being taxable if a student wins, like, large, full cost of attendance scholarship that’s covering all those, tuition, fees, books, supplies, equipment, and food and housing and transportation.

The sort of excess piece that- that’s going beyond tuition, fees, books, supplies, equipment may be taxable. Of course, [00:15:00] always, if there’s any questions about it, check with your tax accountant and they can break it down for you.

Jonathan Hughes: A- and so these are scholarships from many sorts. This includes college scholarships f- from the colleges- Yes and universities. Wow. Yes. And I- I can imagine, is… How will students and families be notified of- of this information, or how would they know?

Shannon Vasconcelos: You should, as a student you should receive a tax form called a 1098-T. It breaks down what you paid for tuition, what you’ve received in scholarships funding. That should tell you there’s additional… It may not be perfect, and there’ll be, instructions and the- the tax i- instructions that- Yeah … will provide more detail on it. But again, if there, you have any questions, best to see- It’s for your tax preparer … a tax accountant. Yeah.

Jonathan Hughes: Yeah. All right, so final question, last question. When should families start thinking about [00:16:00] applying for scholarships?

Shannon Vasconcelos: Yeah. I would first say that the vast majority of scholarships out there, you apply for during senior year of high school. So if you’re approaching that point and you really haven’t thought about scholarships yet, it’s cool.

You’re still okay. You can still apply for most scholarships. Most of them you apply for during senior year of high school. But in an ideal situation, I would say start sort of thinking, get scholarships on your radar kind of as early as freshman year of high school. Even though you probably don’t have to apply for most of them anytime soon

What I would say is when we’re thinking about sort of those, some of those local scholarships, you might start seeing like announcements in like the local paper, things like that, about the local high school senior won XYZ scholarship, and you go, “Oh maybe that’s something that my kid could apply for down the line.”

Take note of that certainly as you start thinking about [00:17:00] where to apply to college. Maybe it’s sophomore year, certainly by junior year of high school you’re probably thinking about these things and maybe starting to visit colleges, things like that. Again, remember the colleges are the most lucrative source of scholarship funding, so thinking about what might be a safety school for me, keeping that open mind about schools, keeping those safety schools on your radar.

Make sure you’re considering those schools where you may stand out as you start looking at colleges, and make sure you’re not looking at just, like all real reach schools. That’s not gonna maximize scholarships for you. And then so th- that’s when to start. The other thing I would point out is keep looking for scholarships even as a continuing college student.

I think many people stop- … after senior year of high school, but there are some of these private scholarships out there specifically for continuing students. They tend to have, I think, a smaller applicant pool because so many k- people stop looking after senior year of high school. [00:18:00] And they may be, again, associated with like a particular career field.

So if you’re go- you’re made your way through college, you’ve got a focus, a certain major that leads to a certain career, m- that maybe opens up some scholarship opportunities for you. So start looking early, and then keep looking even when y- when you think it’s too late, it’s not actually too late to look for scholarships.

Jonathan Hughes: Shannon, anything else you want to say before we go?

Shannon Vasconcelos: No, I think that just about covers it. Good luck with the scholarships, folks. And again, focus on the colleges, focuses on schools where you’re gonna stand out, and I think you are likely to see some good scholarship funding.

Jonathan Hughes: All right. Thank you so much, Shannon.

Shannon Vasconcelos: You are so welcome, Jonathan. So happy to be here with you today.

Jonathan Hughes: All right. Thanks to Shannon Vasconcelos. This was a real pleasure. Remember to [00:19:00] follow the show if you liked what you heard today, and we’ve got more on the way. Until then, my name is Jonathan Hughes, and this has been the MEFA podcast.