Scholarship secrets: how they work and what they cover
Everything you need to know about stacking aid, covering costs and filing taxes
Picture this: one night, you’re at the kitchen table with a cup of tea, a stack of envelopes and your laptop open to an email that says “Congratulations! Your application has been selected.” The scholarship you’ve been hoping for—maybe the Credit Human Scholarship—came through. You breathe out filled with excitement and anticipation for the next chapter of life. Then the questions swirl in:
- How does scholarship money work?
- What can scholarships be used for?
Let’s break it down so you can answer the most important question: How will a scholarship help
What a scholarship is and how it's different from other aid
In a nutshell, think of a scholarship like a gift. Unlike loans, scholarships don’t accrue interest, and it’s money you don’t have to repay. Awards can be merit-based (using grades, talents or leadership experience as the eligibility criteria) or based on your financial situation. Scholarships are typically funded by colleges, nonprofits, foundations, employers and sometimes governments.
At a glance: scholarships vs. other types of financial aid
Click through the various types of financial aid to see details.
| Description | Repayment required? | Eligibility |
|---|---|---|
| Financial aid that doesn’t have to be repaid if you meet certain requirements (e.g. graduate within a specific major or timeframe, complete a service obligation). | No | Need-based |
| Description | Repayment required? | Eligibility |
|---|---|---|
| Money earned through part-time work provided by the college or university. | No | Need-based |
| Description | Repayment required? | Eligibility |
|---|---|---|
| Borrowed money that must be paid back with interest. | Yes | Need-based |
| Description | Repayment required? | Eligibility |
|---|---|---|
| Money earned through an apprenticeship, internship or as a research assistant. | No | Merit-based and typically for graduate students |
| Description | Repayment required? | Eligibility |
|---|---|---|
| Financial aid that doesn’t have to be repaid. May have requirements for renewal, but usually yours once awarded. | No | Need-based and/or Merit-based |
How scholarship money works
Scholarship funds can be paid out (often referred to as a “disbursement”) either directly to your school to cover tuition and fees or sent to you as a check. Many scholarships awarded by schools or outside organizations are sent directly to your college’s financial aid office to be applied to your bill. In some instances, it’s a combination of both. For example, the Credit Human Scholarship requires recipients to confirm enrollment at an accredited college or university. Once verified, the scholarship funds are sent straight to the student to help cover tuition and other eligible expenses, with the check made payable to the college or university.
Always confirm with the scholarship provider to understand how the funds will be disbursed and notify your school’s financial aid office, since scholarships can affect your overall aid package. While scholarship opportunities may not appear in your official FAFSA-driven aid package, they can be "stacked" with federal grants and work-study. For example, let's say the total cost of tuition is $32,000. If you receive financial aid totaling $27,000 and a $5,000 scholarship, you can combine your scholarship with the FAFSA award amount to help lower your out-of-pocket costs.
Beyond tuition—things your scholarship can cover
Most scholarships cover tuition and fees; however, many also allow you to purchase books, course materials and required school supplies. Some even cover room and board (housing and meals). Expenses like transportation (bus pass, subway fare or parking permit), groceries, eating out, technology and clothing usually aren’t included. If your award says “approved educational expenses,” look for the fine print. It will tell you what the scholarship can be used for and what’s off limits. Every scholarship has its own rules. If you’re unsure what your award covers, talk to both your scholarship provider and the school’s financial aid office.
Quick answers to common scholarship questions
- How does scholarship money work?
It’s either paid directly to the college or issued as a check to you. Funds must be spent on allowed expenses per the scholarship provider’s rules. - What can scholarships be used for?
Typically, funds are used for tuition/fees and required school materials. Some scholarships include room and board. Non-qualified expenses can be taxable or prohibited. - How will a scholarship help you?
Scholarships reduce out-of-pocket costs and help limit loan borrowing, which means you take on less debt and see the return on investment in your education sooner.
Another consideration: when scholarships become taxable
Room and board are big expenses. According to Scholarship America, recent averages for housing and meals per semester were about $11,620 at public four-year colleges and $13,120 at private liberal arts colleges. For taxes, clarifying scholarship coverage matters. The general rule of thumb is that scholarship funds used for qualified education expenses (tuition, mandatory fees or required course materials) are usually tax free. Funds used for non-qualified expenses like room and board, travel or optional supplies are treated as taxable income.
Bottom line and next steps
Scholarships do more than pay bills. They buy time—fewer hours at work, more hours to study. They buy breathing room—less stress, more focus. They buy belief—someone out there invested in you. Most importantly, scholarship money creates future financial slack and less stress for your future self since it doesn't have to be repaid after you graduate.
If you’d like help mapping your awards to your actual bill, figuring out stacking rules or building a term by term plan that fits your life, stop by our Financial Health Centers.Bring your questions; bring your story. We’ll meet you where you are and make every scholarship dollar count.
