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Maryland bans scholarship displacement in higher ed

University Business, September 2017

Reducing student financial aid packages based on scholarship funding from outside sources, a common practice, will no longer happen at public colleges in Maryland.

Because of legislation passed in July, a student’s financial aid package can not be reduced unless the student’s total financial aid exceeds college costs or the scholarship provider gives permission.

Central Scholarship, a nonprofit organization that provides scholarships and interest-free loans to Maryland students, had advocated for the law. Some institutions employ displacement to spread funding among more students, which frustrates scholarship providers who want to have a direct impact on student outcomes.

“If a scholarship provider wanted to support a college, they’d give the money directly to the college and not to a student,” says Mark Kantrowitz, a higher ed consultant as well as publisher and vice president of strategy at Cappex.com, a website providing college admission and financial aid information.

One-fifth of colleges and universities nationally reduce their own grants before reducing loans when an outside source scholarship is awarded, according 
to Kantrowitz. That statistic helped prompt the new law.

He says colleges that give out athletic scholarships often do not apply the same displacement rules to their own scholarships, further complicating the issue.

With increased awareness of successful advocacy among scholarship providers, as well as a model for lawmakers to follow, institutions can expect other states to consider similar legislation.

In response, institutions may want to forge compromises with scholarship providers, such as by using scholarships to reduce unmet need or possibly creating a 50-50 split to help limit loans.

Kantrowitz advises forming public-private partnerships. “The scholarship providers and the colleges work together to maximize the impact of the financial aid that the students are receiving because then everybody wins,” he says.

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