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"Scholarship displacement" sounds bad. Who would want a scholarship to be displaced?

And that may be why a new state law in Maryland -- banning public colleges and universities from reducing their financial support when a student receives a private scholarship -- has received so much favorable attention.

But some aid experts (and some proponents of the law) say that much of the discussion about the issue has been based on the assumption that private scholarships (those offered by entities that aren't colleges and universities) are generally awarded based on need. In fact they aren't.

Scholarship displacement is the term (generally used by critics of the practice) to describe situations where a student has received an aid package from a college, and then tells the college she has won a private scholarship. Some colleges respond to this by reducing the amount of the college award by the size of the new scholarship; that's the displacement.

Providers of private scholarships have argued for years that this displacement is, in most cases, inappropriate and unfair to students who have found scholarship dollars. And social media commentary on the new Maryland law was full of praise, and of criticism of colleges for being greedy in taking the funds.

But is there another side? The Maryland law says that a public college may reduce its grant only if the total awarded to a student (with the private scholarship) exceeds students' demonstrated financial need. But other than that, public colleges will no longer be able to reduce their awards without permission of the provider of the private scholarship. What the Maryland law doesn't say anything about, however, is whether the private scholarship is based on financial need or other factors.

Central Scholarship, a nonprofit group in Maryland that primarily supports need-based aid, was behind the new law, pushing legislators to enact it.

Jan Wagner, president of Central Scholarship, said in an interview that her organization became aware of scholarship displacements when some recipients called to tell of lost college aid dollars as a result of winning grants from Central.

Wagner said this was unfair to the students.

"What it takes for a student to apply, find and win a private scholarship is a pretty extraordinary effort," she said. When a college reduces its aid award, "it totally negates that effort."

Further, she said that displacement is unfair to donors of organizations like hers. People give money with the idea that their gifts will make it easier for a student to pay for college, not to make it easier for a college to put together aid packages. "If the donor wanted to help the college, the donor would give directly to the college."

Robert C. Ballard, president of Scholarship America, agrees. His is a national organization of local "Dollars for Scholars" chapters, which collectively awarded $226 million in scholarships last year to about 107,000 students.

Ballard said that he sees displacement as "a moral issue" in that students who have qualified for private scholarships see money disappear from colleges. These are deserving students whose colleges should reinforce the achievement of receiving scholarship dollars, he said.

Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, sees a different set of moral issues.

"I'm sort of surprised by the amount of glee and celebration" about the Maryland law, he said. "It fails to recognize that, for most schools, a victory for one student comes at the expense of another low-income student."

That's because most colleges don't have enough money to meet the full aid needs of all students, he said. So he asked why it wasn't appropriate for a college, seeing that one student ended up with a little more support than expected, shouldn't be a lower priority for institutional funds.

"I understand why it looks ugly," he said of displacement. But he said that's in large part because people don't understand how financial aid works.

Draeger said that he uses a thought exercise when talking about the issue. He asks people if they think that a student on aid whose family comes into $1 million should have aid reduced, and they almost always agree. Half a million? They still agree. That's scholarship displacement, he notes, but for whatever reason, people don't like it when it involves a $5,000 scholarship, even if the principle is largely the same.

A further complication involves the mix of need-based and non-need-based aid.

Much of the discussion about Maryland's new law has noted that most Central Scholarship awards are given on the basis of recipients' financial need. But not all of them are. Central administers the BGE Scholars Program, financed by Baltimore Gas and Electric. Recipients must be good students who are committed to community service. They must also be the dependents of BGE customers. There is no income cutoff.

For a wealthy student without any financial need, the scholarship displacement law doesn't come into play. But someone receiving some need-based aid would not lose any of it for winning the BGE scholarship, even if other students at the same college have unmet need.

Wagner acknowledged that the law she pushed protects the BGE scholarships as much as those awarded based on financial need.

As for Scholarship America, Ballard said that, historically, most of its funds have not taken need into account. Many of the funds were created by towns or communities -- some of them well off -- to support the best local talent. Over time, he said, his organization has encouraged more of an emphasis on need-based aid, and now the share awarded that way is approaching half of all funds.

Of course, if the argument against scholarship displacement is based on the (sometimes true) view that scholarships are based on need, so too there can be questions about how colleges spend aid funds. Many college spend big on non-need-based aid so it's also not clear that money gained from displacement would always help low-income students.

Draeger, who defends the right of colleges to reduce aid awards if it is to spend on other needy students, said that the practice would be "indefensible" if the money is used for anything but need-based aid.


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