What are Scholarships and How Do They Work? (Guide) | Cappex (2023)

Scholarships are a convenient way to pay for your college education, but many students are confused about how the whole process works. How is the money awarded, and what can you spend it on? What about outside scholarships? If, like many other students, you’re wondering how scholarships work, this is the guide for you.

Below, we answer big questions ranging from “what is a scholarship?” and “where can I get scholarships?” to more nuanced questions like “do I have to pay back scholarships?” We also give you the chance tosign up for a Cappex accountso can search our huge database of scholarships to find the right options for you.

What is a Scholarship?

Scholarships are financial aid awards designed to help students pay for an undergraduate or graduate degree. Sometimes a scholarship is a one-time check. Other school scholarships are renewable and provide money for students each semester or school year.

These financial awards differ from student loans in that they don’t have to be repaid. So, to answer a question we often hear, if you get a scholarship, you do not have to pay it back.

Students might receive the money directly as a check in their name. In other cases, the money is given to the student’s school. When that happens, the student would then pay the school for the difference in any money owed for tuition, fees, room, and board. If the scholarships and other forms of financial aid are enough to cover the direct college costs, the excess money is refunded to the student.

Where Do Scholarships Come From?

Scholarships come from a variety of different sources, including clubs, organizations, charities, foundations, businesses, colleges and universities, the government, and individuals. Colleges and universities offer financial assistance in the form of merit aid as well, so don’t forget to contact the schools you are considering to see if you qualify for any merit aid.

What Are the Main Sources of Scholarships and Grants?

There are four major types of free money available to college applicants. We will list and discuss them below with the percentage of total grants and/or scholarships that comes from each source:

  • Federal grants: 47%
  • State grants and scholarships: 8%
  • Scholarships and grants from schools: 35%
  • Private scholarships: 10%

1. Federal Aid (47%)

It’s estimated that the federal government gives out $120 billion each year in federal aid. But if you are looking for merit scholarships from the federal government, you’re going to be out of luck. Almost all grants from the federal government require demonstrating financial need. To qualify for any federal grants, you must complete theFree Application for Federal Student Aid(FAFSA).

Expert tip: We recommend submitting your FAFSA to any school you think you might possibly be interested in attending, even if you haven’t applied there. It’s easy to do this – you just add these schools to the School Section of the FAFSA.

Here are the two major grants that fall under Federal Aid.

  • Pell Grant

By far, thePell Grantis the biggest federal grant. Pell Grants are available to students with demonstrated financial need. For context, during the award year 2020-2021, 78percent of Pell Grant recipients had a family income of less than $40,000 a year.

The current full grant, which is adjusted annually, is $6,895 for the 2022-2023 award year.

Is FAFSA a Pell Grant?

Answer: No. The FAFSA is the application, and a Pell Grant is one type of financial aid available to students who complete the FAFSA.

  • Federal Supplemental Educational Opportunity Grant

The FSEOG is available for students who have “exceptional financial need.” If you don’t qualify for a Pell Grant, you won’t be eligible for this grant that ranges from $1,000 to $4,000 annually. The FSEOG will not be available on all campuses and the money can run out.

  • Education Tax Benefits

The federal government provides several education tax benefits, which are claimed on your federal income tax return. Some are based on tuition and textbook costs. These include the American Opportunity Tax Credit (AOTC), Lifetime Learning Tax Credit (LLTC), and Tuition & Fees Deduction.

Of these, the AOTC yields the greatest tax savings per dollar of qualified higher education expenses, but it is limited to four years. The LLTC is used mainly by graduate and professional students and continuing education students after they exhausted eligibility for the AOTC.

Another popular education tax benefit is the Student Loan Interest Deduction, which provides an above-the-line exclusion from income for up to $2,500 in interest paid on federal and private student loans.

  • Veterans and Military Student Aid

The federal government provides several types of military student aid to members of the U.S. Armed Forces and veterans. These include ROTC Scholarships, the Montgomery G.I. Bill, the Post-9/11 G.I. Bill, the Yellow Ribbon Program, U.S. Armed Forces Tuition Assistance (TA) and the Student Loan Repayment Program.

  • Federal Loans

If you aren’t eligible for federal grants, you can turn to federal loans.

  • TheDirect Loanis for those who file the FAFSA and are attending school at least half time. During a five-year period, students can borrow a maximum of $31,000.
  • ThePLUS Loanis designed for parents of undergraduate students, as well as graduate and professional students. Parents can borrow the difference between the cost of the school and what their child received in financial aid.

2. State Aid (8%)

Almost every state education agency has at least one grant or scholarship program available to state residents. Some offer several programs.

States in the South are more likely to award money based on grade point average and possibly test scores. States on the East and West coasts are more likely to provide awards based on financial need.

An easy way to learn more about aid programs in your state is to head to the website of theNational Association of Student Financial Aid Administrators(NASFAA).

On the NASFAA website, you can find links to your state aid programs by following these steps:

Some state programs, such as those in California and New York, have centralized systems, which means that awards are set by state-level formulas. In other states, the government sets basic criteria, but they allow public universities to exercise some discretion when making the awards. States in this category include Texas and Virginia.

3. Institutional (School) Grants and Scholarships (35%)

Here is how the award process often works. A student applies to a school and the admission office decides whether to accept the applicant. If the school gives merit scholarships, the decision typically will be made during the acceptance process, usually based on the student’s grades and test scores.

This often happens before the school knows if a student qualifies for need-based aid. When the school reviews the financial aid form, the admission staff decides whether a child still needs assistance, even after taking merit scholarships into consideration.

If the school is willing to give additional assistance, it would award a need-based grant on top of the scholarship. The most highly ranked research universities and liberal arts schools give no merit scholarships.

Their aid is exclusively in the form of need-based grants. Consequently, if you don’t qualify for need-based aid, you will pay full price at these institutions. Because of the wide variety of assistance that you can encounter, it’s important to use a net price calculator when evaluating the generosity of any school.

4. Private Scholarships and Employer Grants (10%)

Outside groups such as foundations, civic groups, companies, religious groups, professional organizations, and charities award private scholarships. Many people assume that private scholarships represent the biggest source of school money, but as you learned, they are among the smallest sources.

Unlike other sources, these scholarships typically last for just one year, and most of these awards are under $4,000. The odds of winning a scholarship are about one in eight. Prestigious scholarships can have odds of one in 250 or one in 500.

How Can Scholarship Money Be Spent?

Scholarship checks awarded in your name can be spent on anything, but you would be wise to look at this as an investment and not a free pass to splurge on video games or concert tickets. This money is for school expenses. This could mean tuition, but it could also be books, pencils, housing, food (you can’t study on an empty stomach), or even computers and software.

When you receive the scholarship money depends on the scholarship you won. Sometimes you get the money in one chunk before school begins, and in other cases, the money is distributed in installments. Sometimes a scholarship may be paid out in the middle of a semester.

How are Scholarships Awarded? Who Can Qualify for Them?

Scholarships aren’t awarded just to students with a 4.0 GPA. Each scholarship has its own criteria. Some scholarships are awarded based on need. For others, you must be a member of an organization, studying a certain field, an exceptional athlete, or fit whatever guidelines the group awarding the money decides upon.

Regardless of whether you excel in academics or sports, you should be able to find several scholarships that work for you. There are even scholarships intended for students living in a particular state or town. You can continue to apply for scholarships during your collegiate years all the way up to your Ph.D. studies.

Looking for Scholarships?

Supplement the college and university scholarships you receive by checking out Cappex's scholarship database. We have millions of dollars worth of scholarships you can apply for to help bring down the cost of college.

Click the button below to create a free account and get personalized scholarship matches today! You'll automatically be entered for the Cappex $1,000 Easy Money Scholarship that's awarded each month.


How does a scholarship work? ›

Scholarships are merit-based, need-based, and non-need-based monetary awards. They may range from paying a portion of your tuition to fully funding all costs linked to your college education.

What are scholarships and how do you get them? ›

You earn them by meeting or exceeding certain standards set by the scholarship-giver. Merit scholarships might be awarded based on academic achievement or on a combination of academics and a special talent, trait, or interest. Other scholarships are based on financial need.

Why is it important to have a scholarship? ›

Scholarships are an incredible source of financial assistance for college students. Unlike loans, scholarship funds are free money. That means you don't have to pay them back over time — an assurance that can vastly reduce financial stress and help you focus more on your studies.

How do scholarships make money? ›

Scholarship money can come from any number of sources. There are scholarships provided by governments, corporations, universities or any organization with a little goodwill and some money to burn. Many famous scholarships come from stipulations in the wills of philanthropists.

What are the 4 types of scholarships? ›

Some Examples:
  • Academic Scholarships and Merit Scholarships. ...
  • Community Service Scholarships. ...
  • First in Family Scholarships. ...
  • Leadership Scholarships. ...
  • Legacy Scholarships. ...
  • Military Scholarships. ...
  • No Essay Scholarships. ...
  • Prestigious Scholarships.

What would this scholarship mean to you? ›

This scholarship means more to me than just obtaining money; it also means that I am viewed as having potential for the future of our society. I will continuously have individuals to thank for my accomplishments, and I greatly appreciate the generous financial support I have been given to pursue my education.

Who are scholarships reserved for? ›

Generally, merit scholarships are reserved for students with special qualifications, such as academic, athletic or artistic talent. Awards are also available for students who are interested in particular fields of study, are members of underrepresented groups, or live in certain areas of the country.

How do you answer how a scholarship will help you? ›

I am planning to work during my undergraduate degree, but I do wish to focus a lot of my time on my studies. This scholarship will help by lowering the costs of college and the amount of hours I'll need to work throughout my studies. This way, I'll be able to continue with my academic achievements.

How do you write a good scholarship answer? ›

  1. Plan ahead. Don't procrastinate! ...
  2. Talk about your accomplishments. Be clear and to the point. ...
  3. State your need. What is your financial situation? ...
  4. Keep it simple. Don't use unnecessary words (i.e., don't use three words when one will do) ...
  5. Make it easy on your reader.

What is the best answer for scholarship interview? ›

Highlight your personality traits that are relevant to the scholarship. If you know what they're looking for, then mention those skills! This is great for students who might not have extracurricular activities related to the scholarship but instead have qualities that would make them an asset to the organization.

Why do schools give scholarships? ›

Scholarships provide financial support for students to help pay for a college degree. These funds enable students to obtain education they may not have access to otherwise. Scholarships go further than being financial aid for many students. They reward deserving students with the ability to afford higher education.

Do scholarships pay students? ›

Private scholarships may be sent directly to your college account or directly to you in the form of a check or direct deposit into your bank account. If you win a scholarship and you're not sure how you'll receive the money—just ask. Your college expects you to tell them about any private scholarship money you've won.

Are scholarships free money? ›

Both scholarships and grants for college are free money to help you pay for your education. Unlike student loans, you don't have to pay back college grants or scholarships, except under certain circumstances, like withdrawing early from a program or a change in your enrollment status.

What are five sources of scholarships? ›

Scholarships come from a variety of different sources, including clubs, organizations, charities, foundations, businesses, colleges and universities, the government, and individuals.

What are some examples of scholarships? ›

Some Examples:
  • Academic Scholarships and Merit Scholarships.
  • Athletic Scholarships.
  • Cancer Scholarships.
  • Corporate Scholarships.
  • Essay Scholarships.
  • Full Tuition Scholarships.
  • Last Dollar Scholarships.
  • Minority Scholarships.

What is the most common scholarship? ›

Need-Based Scholarships

One of the most popular types of scholarships for college are need-based. These scholarships are accessible to applicants who have a demonstrated financial need, and a program might ask for proof, such as income documentation or FAFSA® information.

Can everyone apply scholarships? ›

Dependent on your level of study, there will be different opportunities available. While some scholarship schemes are open to all students, there are also dedicated master's scholarships, PhD scholarships, postdoctoral scholarships and academic research scholarships.

Do all students get scholarships? ›

Only meritorious students are eligible to get a scholarship. The amount of scholarship that a student receives is not worth your efforts.

How do you write a 500 word essay for a scholarship? ›

The format of a 500-word scholarship essay is similar to a shorter essay. Each paragraph is about 75-125 words, and it consists of 3-5 well-written sentences. If you are writing a story or personal anecdote, the formatting can be more like a novel than a news article. It is ok to use 10% less or more words.

How do you start a scholarship essay? ›

The best choice is to write an attention-grabbing sentence. It should be something persuading or intriguing that will make a person continue reading your essay with great interest. Avoid long explanations or introductions. Instead, this sentence should be short and clear.

What do I say in a scholarship essay? ›

A typical scholarship essay topic will likely ask students about their career goals and their plan to achieve those goals, Matthews says. Other essay prompts might ask students what they've done to make their community a better place or to describe a personal achievement and how they overcame challenges to reach it.

What is considered a good scholarship? ›

It could be 25% of your one-year's tuition fee or $5,000-$10,000. You might get a $50,000+ scholarship and should consider yourself lucky if you get any amount above $15,000. The better and more robust your student profile, the larger amount you will get. Don't ignore smaller scholarships that offer $500-$1000.

How can I impress a scholarship interview? ›

Interview Basics
  1. Being on time (or, even better, early)
  2. Dressing up.
  3. Having a good handshake.
  4. Being courteous and friendly.
  5. Taking your time.
  6. Not interrupting the interviewer before they finish asking the question.
  7. Bring the necessary supplies (pen, paper, folder, required materials, etc.)
Dec 22, 2022

How do I prepare myself for a scholarship? ›

Scholarship Application Tips
  1. Meet all application deadlines. Use a calendar or planner, make a schedule, and stick to it. ...
  2. Gather application materials early. ...
  3. Don't ignore small awards. ...
  4. Request letters of recommendation early. ...
  5. Write a great essay. ...
  6. Attend a scholarship workshop. ...
  7. Sing your own praises. ...
  8. Try, try again.

Do you ever have to pay back a scholarship? ›

Usually, the answer is no. Scholarships are a form of nonrepayable gift aid, much like many federal grants. Student loans, unlike grants and scholarships, are borrowed money that must be paid back with interest. Scholarships are considered free money because there are no expectations for repayment.

Do you keep scholarship money? ›

What happens to leftover scholarship money. If you earned scholarships and grants that add up to more than your total cost of attendance, your school may send you a refund of the leftover scholarship money. Keep in mind, you may have to pay taxes on that amount.

Do you have to pay scholarships back? ›

Just like grants, scholarships do not require repayment and are awarded for almost anything.

Are scholarships paid to the student? ›

Sometimes a scholarship is a one-time check. Other college scholarships are renewable and provide money for students each semester or school year. The money is given to the student's financial aid department who applies it to their student account.

Do scholarships expire? ›

Applying for scholarships is an important, must-do part of college prep, but it's important to note what many students don't ask: Do scholarships expire? The answer is yes, scholarships can expire.

What are the easiest scholarships to get? ›

Top easy scholarships in 2023
  • $10,000 “No Essay” Scholarship.
  • $2,000 Nitro College Scholarship – No Essay.
  • $25,000 No Essay Scholarship.
  • March Madness Scholarship.
  • $5,000 Christian Connector Scholarship.
  • $2,000 CampusReel Virtual Tour Scholarship.
  • Annual Protestant Faith Based College Scholarship.
Mar 2, 2023

What happens to unused scholarship money? ›

In some cases, you may be allowed to keep the money and put it towards anything you want. However, in most cases, you will likely have to return the money to the provider so that they can add it to a new scholarship fund for other students.

Can you buy a car with a scholarship? ›

Things you can't spend scholarship money on: A car. While you may not be able to use scholarship money on purchasing a car, you may be able to get other transportation costs covered, like gas and public transportation expenses.

Can you spend a scholarship on anything? ›

This will depend on the scholarship admin. Many awards come in the form of a tuition credit, so you're out of luck there. If your award comes in the form of a cheque, cash, or money order, though, you're free to use it for other academic expenses, like school supplies or your meal plan.

Where does scholarship money go? ›

The money might go directly to your college, where it will be applied to any tuition, fees, or other amounts you owe, and then any leftover funds given to you. Or it might be sent directly to you in a check.

What happens to my scholarship if I take a semester off? ›

The FAFSA is completed each year, so if you take a semester or year off for a high-earning opportunity, this could affect how much aid you receive in future years. Private scholarships and grants might require different things, so to be safe, ensure there are no stipulations to your prize money.

What does receiving a scholarship mean to you? ›

These financial awards differ from student loans in that they don't have to be repaid. So, to answer a question we often hear, if you get a scholarship, you do not have to pay it back. Students might receive the money directly as a check in their name. In other cases, the money is given to the student's school.


Top Articles
Latest Posts
Article information

Author: Lidia Grady

Last Updated: 12/10/2023

Views: 6339

Rating: 4.4 / 5 (45 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Lidia Grady

Birthday: 1992-01-22

Address: Suite 493 356 Dale Fall, New Wanda, RI 52485

Phone: +29914464387516

Job: Customer Engineer

Hobby: Cryptography, Writing, Dowsing, Stand-up comedy, Calligraphy, Web surfing, Ghost hunting

Introduction: My name is Lidia Grady, I am a thankful, fine, glamorous, lucky, lively, pleasant, shiny person who loves writing and wants to share my knowledge and understanding with you.