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How Scholarships Work and Why You Need Them


It’s been nearly six months since you submitted your college application when, finally, an email from the admissions office lands in your Inbox.

As you open it, animated confetti showers down the screen, creating a digital celebration for your acceptance. Excitement soon turns to anxiety as the reality of what it costs to attend your dream school sinks in.

If you hadn’t considered them before, this is the prime time to start identifying and applying for college scholarships.

What Is a Scholarship?

A scholarship is a form of financial aid awarded to a current or future student to help pay for higher education expenses. They are usually given to individuals based on merit or need, and they don’t have to be repaid.


Differences Between Scholarships and Grants

These terms are frequently used interchangeably. However, there are a few subtle differences between these two forms of “gift aid” worth noting.

Most scholarships are based on merit, which means eligibility is determined by such things as academic achievement, athletic or artistic talent, or interest in a particular field of study.

Some are one-time awards, while others are recurring gifts that you’ll continue to receive if you meet certain ongoing requirements like maintaining a minimum GPA.

Grants, on the other hand, are always awarded based on financial need.

The amount of grant aid you can receive depends on your income, the school’s cost of attendance, and other factors determined when you fill out the Free Application for Federal Student Aid (FAFSA) form.

You don’t have to repay money from a grant unless you withdraw from school before an enrollment period ends or if you fail to honor any legal or service obligations it might have. 

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Why Scholarships Are Important

Going to college is expensive. Really expensive.

In fact, the average total cost for an in-state student to attend a four-year college or university is nearly $27,000 per year.

The price jumps to more than $43,000 annually for an out-of-state student to go to the same school, while the average all-in cost to enroll in a private college eclipses $54,000 per year for tuition, fees, room and board.

Although there are numerous ways to save for and finance your postsecondary education, scholarships can and should be part of your overall strategy. They can be used to:

  • Reduce your out-of-pocket expenses
  • Supplement your personal college savings
  • Lessen the amount you may have to borrow with a student loan
  • Decrease or eliminate the need to work while in school

This is essentially “free money,” so any amount that you can collect — even if it seems insignificant — is valuable because it helps lower the overall cost of your education.

You can find scholarships for everything from being an average student to having unique interests or talents.

Where Scholarships Come From

In the United States, there are thousands of scholarships from the public and private sectors available to students pursuing an education beyond high school. Common sources include:

Types of Scholarships

You may instinctively envision a football or basketball phenom receiving a “free ride” to play their chosen sport in college.

Or, perhaps, you recall a story about a high school math whiz who had their undergraduate education paid for after acing the SAT. 

Although athletic and academic scholarships grab headlines, they’re not the only types available to students. Scholarships more or less fall into these categories:


There are a wide range of need-based scholarships available for students from low-income backgrounds. To qualify, you’ll have to demonstrate financial need and, in some cases, meet merit or academic requirements as well.

Community Service

Giving of your time and striving to make the world a better place can pay dividends in your community and beyond — and even help to pay for college. Many organizations and colleges offer community service scholarships to offset education expenses for civic-minded students.

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Although the GI Bill has been helping military service members pay for college and other forms of education since 1944, there are scores of scholarships for military members and their families. However, you have to be currently enrolled in or enlist in a branch of the armed forces to take advantage of these award-for-service programs.


If you or your spouse work for a large company, they may offer tuition assistance or other benefits for employees or dependents looking to further their education. Check with your human resources department or search a database of employer-sponsored scholarships to learn more about programs for specific companies or industries.


Academic scholarships are awarded to high-achieving high school students based on their overall grade point average (GPA) and SAT or ACT scores. The best place to learn more about and apply for these types of awards, which generally range from a few thousand dollars to full tuition coverage, is the National Merit Scholarship Corporation.

The amount of grant aid you can receive depends on your income, the school’s cost of attendance, and other factors.


Students who excel in a particular sport may receive money from a college or university as incentive to play for that school. It takes years of hard work both on and off the field or court to earn this type of award, making an athletic scholarship of any amount one of the most coveted yet elusive forms of financial aid.

How Scholarships Work

Each has its own rules for eligibility, amount of aid, and method of distribution.

For example, you might receive a one-time award of several hundred dollars from your church or a renewable scholarship from the college you plan to attend that helps cover your expenses for up to four years.

The funds could be sent directly to your school and earmarked for specific fees or deposited in your bank account to be used as you see fit.

In some cases, the award may be an in-kind gift like waived tuition and fees rather than actual money.

There’s no limit to the number of scholarships you can apply for and receive.

No matter how they’re set up and administered, the application process is similar. Typically, you’ll need to submit an application that includes:

  • High school transcript
  • SAT or ACT scores
  • Financial aid forms
  • Household income information
  • Essay(s)
  • Letter(s) of recommendation
  • Proof of eligibility (varies by scholarship)

A committee will then review your application to determine if you meet the eligibility requirements and decide whether or not to award you the prize.

Scholarship FAQs

When you have specific questions, it’s best to go directly to the organization that oversees the program. That said, here are answers to some of the most common queries:

How Are Scholarships Paid Out?

Each scholarship has guidelines for how it distributes funds. Some will send money to the school you plan to attend, while others will direct funds to you or deposit them in your bank account. 

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How Can Scholarships Be Used?

Although this money is intended to be spent on direct costs of education, it’s really up to you how to use the funds. Keep in mind that the more you spend on nonessentials the less you'll have for tuition, room and board, books, and other essential expenses.

Are Scholarships Taxable Income?

Scholarship funds used to pay for tuition, fees, and course materials aren’t taxable. However, money spent on living expenses can be taxed. 

Do You Have to Pay Back Scholarships?

Scholarships don’t need to be repaid. However, you can lose a renewable scholarship if you fail to continue meeting the requirements of the program. You’d then be responsible for paying that portion of your education expenses moving forward.

Some scholarships are one-time awards, while others are recurring gifts that you’ll continue to receive if you meet certain ongoing requirements.

Where Can I Find Scholarships?

The best place to begin your search for any type of financial aid — including most scholarships aside from, say, those for athletes — is the U.S. Department of Education’s office of Federal Student Aid. 

Who Can Qualify for Scholarships?

Given the sheer number of merit- and need-based awards available, you (and most anyone) should qualify for some form of scholarship. If you look hard enough.

How Many Scholarships Can You Get?

There’s no limit to the number of scholarships you can apply for and receive. However, if the total scholarship funds you receive exceeds your calculated need, the college you plan to attend will reduce the size of its financial aid package to you.

The Takeaway

Regardless of your financial situation, you should apply for as many scholarships as possible if you, your spouse, or your dependent plan to attend college or trade school.

It requires a good bit of legwork offsetting your higher education expenses by hundreds or thousands of dollars is well worth the time and effort. 

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