When teenagers start searching for college scholarships, they usually look in the absolute worst place.
Typical teenagers and their parents assume that the best way to cut their college costs is to win private scholarships. I'm talking about modest scholarships from nonprofits like the Rotary and Kiwanis clubs and major prizes from the likes of AXA Equitable, Coca-Cola and The Bill & Melinda Gates Foundation. And then there are the oddball scholarships awarded to students who design duck tape prom outfits or kids who happen to be left -handed flutists from Wisconsin. I exaggerate, but you get the idea.
It's frustrating that teenagers devote so much energy to chasing these private awards because so many of them are puny. The average private scholarship is about $2,500. What's more, these scholarships represent only 4 percent of all the money each year that's available through college grants.
So where is the big money?
The federal government is sitting on the largest stockpile (44 percent) of college grants. The biggest federal award is the Pell Grant, which provides a maximum award of $5,550 to eligible students. It's highly unlikely, however, that your clients will qualify for a Pell Grant or any of the smaller federal grants. You typically must have an income of less than $30,000 to capture the full Pell Grant and families with incomes approaching $50,000 have little chance of pocketing anything. The only federal assistance your clients will probably qualify for will be government loans.
Your clients, however, can strike gold by focusing on the nation's second largest source of scholarships, which you can trace right up to the front doors of colleges and universities across the country. It's these institutional awards from the colleges themselves that families should aggressively pursue.
You might be shocked at how much is available. Private colleges and universities dole out merit awards that typically slash 49 percent off their published tuition, according to the latest annual statistics from the National Association of College and University Business Officers. A student who captures the average grant from a school that charges $38,000 in tuition, for instance, would save more than $18,600 a year. That's a heck of a lot better than a one-time check of $250 from your local Lions Club.
Why Do Colleges Award Scholarships?
Why are private institutions discounting so heavily? Here are three reasons:
They must compete with less expensive state schools, and their scholarships help them remain competitive.
Schools use the awards to compete among themselves for promising prospects, regardless of their financial need, because, contrary to conventional wisdom, it's a buyer's market. Most private schools worry every year about filling all their freshmen slots. The exceptions are the Ivies and a few dozen ultra elite schools, which turn away the vast majority of their applicants. All the other schools must offer discounts to improve their curb appeal.
Schools use merit scholarships to attract solid students, which they hope will help them improve their U.S. News & World Report's college rankings or at least allow them not to lose any ground.
This is going to sound perverse, but the widespread use of scholarships — 88 percent of students at private colleges and universities receive some type of award — are one reason why prices at private institutions are so outrageous. Schools use some of the extra revenue that's generated from their higher prices to bestow scholarships on the teens they covet.
State University Scholarships
It's not just private schools, by the way, which are dispensing institutional scholarships. Public universities are also luring attractive teenagers to their campuses with scholarships. Just like their private counterparts, state schools are dispensing awards not just to needy students, but to wealthy teens too. According to the Education Trust, flagship universities in the 50 states were recently awarding an average scholarship of nearly $4,200 to students in the top income quintile. Keep in mind that the state awards aren't going to be as high as those offered by private schools because the price tags are considerably lower.
State universities dispense money to wealthy students for the same reason that private schools do. Affluent students are more likely to have attended top public and private high schools that have prepared them well for college, and they also tend to have higher GPAs and standardized test scores. State schools attracting these students also hope it will help them inch up U.S. News & World Report's rankings.
Top students, who hope to win merit scholarships from flagship universities outside their own states, need to be aware that it's often going to be tougher pocketing awards than from private institutions.
Why? Flagships are often the most prominent schools in their respective states so they rarely have a problem attracting enough applicants. Flagships typically reserve their awards for a smaller percentage of students, who have earned high grade point averages and standardized test scores.
Smart nonresidents may actually end up overpaying to attend flagships because these schools need the extra revenue generated by out-of-state tuition as support from their state governments continues to decline.
Some prestigious state universities, such as UCLA, University of California, Berkeley, University of Michigan and University of Virginia, are now charging in the $50,000 range or higher for outsiders. Buyers beware.
Lynn O'Shaughnessy is a college consultant, author and speaker. She writes three college blogs for CBSMoneyWatch, U.S. News & World Report and TheCollegeSolutionBlog.com.