When students earn college scholarships, they don’t control where the funds go, nor does their school. So who does—and why? Here’s the answer…

You’ve done the hard work and won some wonderful scholarships. Now, you’re ready to showcase your winfall. But when you pass the good news on to your school’s financial aid office, you quickly learn those funds can’t be applied to anything—they’re specific to certain university expenses, such as tuition only. What’s worse is that your tuition is already paid, and this extra money is needed elsewhere—for instance, for housing and/or a meal plan. However, those award funds simply cannot be applied because they’re reserved just for tuition. So what happens now? Read on to learn the answer.

Who Really Controls College Scholarship Funds?

Winning a college scholarship is a milestone for many students, offering financial relief amid rising tuition costs. However, these awards often come with strict conditions set by the grantor—the donor, foundation, corporation, or organization providing the funds—not by the student recipient or the college they attend. Understanding this dynamic is crucial, as it can determine whether the money ultimately benefits the student or reverts elsewhere.

The Grantor Dictates Usage

Scholarship grantors dictate usage to ensure alignment with their mission, such as supporting specific fields like STEM or nursing, attending designated institutions, or maintaining a minimum GPA. These restrictions classify the funds as “restricted,” meaning they are earmarked for precise purposes and cannot be repurposed at the student’s or school’s discretion. 

For instance, a grant agreement typically requires the funds to cover only approved expenses, such as tuition or books, and requires the school to apply them directly to the student’s account upon verification of eligibility. If a student attempts to use the money for unrelated costs, such as travel or personal expenses, it violates the terms and could lead to revocation.

The school acts as a steward, not a decision-maker, disbursing funds in accordance with the grantor’s guidelines and reporting on compliance. Students receive no direct control; checks are often sent to the institution, which adjusts aid packages accordingly. This setup prevents misuse but limits flexibility. When a student receives more funding than needed, it can create an “overaward.”

Possible Overaward Scenarios

This begs the question: What happens if the scholarship cannot be applied as intended? For instance, like in the above example, when a student’s tuition is met, but they still have more scholarship money designated for tuition. (Other typical scenarios include changing majors, transferring schools, or failing to meet academic thresholds.)

In such cases, the award is typically terminated, and any unused or unapplied funds are returned to the grantor. For major-specific scholarships, switching fields—such as from engineering to liberal arts—may disqualify the recipient, prompting repayment of disbursed funds or forfeiture of future installments. 

If a student opts for an out-of-state school in violation of a state residency requirement, the funds revert to the provider for reallocation to another eligible candidate. Dropping out or not enrolling as planned similarly triggers clawback, with the money recycled into the endowment or next cycle’s awards. Rarely, if eligibility lapses post-disbursement, students might owe repayment to avoid tax implications on “unearned” income.

Beware the Overaward Because

When a student wins a scholarship that creates an “overaward”—meaning the total financial aid package (grants and scholarships) exceeds the cost of an expense, such as tuition—the student does not get to keep the excess money as cash. In this case, the outcome is primarily dictated by the grantor’s rules and the college’s financial aid policy.

The most common outcome is that the tuition scholarship itself will be reduced or canceled. Since most scholarships are restricted to a specific expense, like tuition, the granting organization will allow the funds to be applied only to the amount the student still owes for that expense. To prevent the student from being “paid” to attend school, the total amount of need-based aid is adjusted to equal the school’s officially published Cost of Attendance (COA). However, if the scholarship allows for QEE (Qualified Educational Experiences), the money may be used to cover other costs.

Possible Use Scenarios

In some cases, the college’s financial aid office will apply the excess scholarship funds to other remaining eligible costs within the student’s COA, such as room and board, books, supplies, or mandatory fees. Only once the student’s entire COA is fully covered might any remaining funds be returned to the scholarship grantor. Students cannot unilaterally decide to use a tuition-specific scholarship for their personal expenses, which is the key frustration for many who win multiple awards.

These rules safeguard donor intent but underscore the need for due diligence. Before accepting, review the terms meticulously—many scholarships allow appeals for exceptions, such as temporary significant changes. Ultimately, while scholarships empower dreams, their realization hinges on honoring the grantor’s vision.

Parents, what have been your experiences with scholarship overawards, and what would you add?