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Why Merit Aid Often Matters More Than Outside Scholarships

Many families assume that applying for numerous outside scholarships is the best way to lower college costs. In reality, merit scholarships awarded directly by colleges often provide far greater financial benefit.

Attracting a merit award is a gift that "keeps on giving." Merit aid reduces tuition and fees upfront and is usually renewable for multiple years, which helps with cost predictability,  Outside scholarships, however, are frequently counted against a student’s financial aid package, especially at private colleges. When this happens, the college may reduce its own need-based grant by the amount that was awarded through the scholarship. Bottom line: the actual net cost does not change.

In other words, a student receiving a substantial merit award is often in a better financial position than a student relying on multiple small outside scholarships.

What Exactly is Merit Aid?

Think of a merit award as the proverbial "carrot on the stick." Colleges award merit money to attract students whom they want to yield. While academic or extracurricular strengths and accomplishments are typically the basis behind merit awards, that is not always the case. Sometimes an applicant's diversity of interests, background, unique experiences, talents or geography can tip the scales in favor of merit awards.

A strong signal of character or fit with a particular college and its priorities can also attract merit. 

Note that not all colleges offer merit aid. Typically, the most selective colleges and universities do not offer merit awards in order to attract applicants or yield their classes.

The Reality Behind Outside Scholarships 

Outside scholarships often replace institutional need-based grants. Many colleges follow a policy through which outside scholarships are applied to reduce institutional awards.

For example:

• A student receives:
• $25,000 in college grant aid
• $5,000 in outside scholarships
• The college may reduce its grant aid to $20,000.
• Net result: No financial gain for the family.

This practice is common at many private colleges and universities, where institutional grants make up a large portion of aid packages.

Many outside scholarships:

• Require lengthy applications and essays
• Offer relatively small award amounts ($500–$2,000) and are extremely competitive
• Are often one-time awards

Students may spend dozens of hours applying for scholarships that ultimately do not significantly reduce the total cost of college if the college adjusts its aid downward by the value of outside scholarships. 

Merit Aid

In contrast, merit aid Is  predictable and renewable  if the student remains in good standing. Typically, merit scholarships: 

• Are awarded at admission
• Are renewable for 4 years
• Can be significant -- sometimes $20,000–$100,000+ over four years

From a planning standpoint, merit aid gives families clarity and stability.

When Pursuing Outside Scholarships Does Make Sense

Outside scholarships can still be worthwhile when:

• A family does not qualify for need-based aid or merit is unlikely.
• A college allows outside scholarships to be added on top of institutional aid. This is known as "stacking."
• The college's policy allows outside scholarships to replace student loans or work-study obligations.
• The scholarship is substantial and renewable.
• If applying to local or community-based scholarships which tend to have less broad competition. These might include scholarships funded by Rotary; memorial organizations; special grant-making organizations; high school PTO. 

Some Common FAQs About Merit Aid vs. Outside Scholarships

Q. Why do colleges reduce their own aid when a student receives an outside scholarship?

A. Colleges are required to ensure that total aid does not exceed the cost of attendance. Colleges are likely to apply outside scholarships toward meeting a student’s demonstrated financial need . This is likely to result in a reduction of  institutional grants as additional outside funding becomes part of the equation.

Q. Will an outside scholarship ever increase what a family pays? 

A.Usually no, but because it may not lower the cost at all, students can feel disappointed after investing significant time in outside scholarship applications.

Q. Is merit aid ever affected by outside scholarships?

A.Merit aid is usually more protected than need-based aid, but policies vary. Families should always review each college’s financial aid website or consult the financial aid office directly on the impact of an outside scholarship on merit awards. 

The Bottom Line

College-awarded merit scholarships almost always lowers the true cost of attendance and are a more reliable way to reduce college costs. Outside scholarships should be viewed as a potential supplement and not the primary strategy for paying for college.