Funding college scholarships is a central feature of education philanthropy. The area is full of complexity, however, and it is possible for benefactors to err. This article explores the details and recommends how philanthropists can be strong supporters of scholarship.

During 2019 this publication carried a great deal of content about philanthropy in a wide variety of forms and we are determined to continue exploring the field as 2020 gets going. Here is an article from Caroline W. Hodkinson, director of Philanthropic Advisory, Bessemer Trust. (More on the author below). This article drills into the details of scholarships – an important philanthropy area. The editors of this news service are pleased to share these views with readers; we invite responses and of course the usual editorial disclaimers apply. To get in touch, email tom.burroughes@wealthbriefing.com or jackie.bennion@clearviewpublishing.com

Education has traditionally accounted for a substantial share of philanthropic giving in the US, and last year roughly 14 per cent of the $428 billion donated to charitable organizations was allocated to education, making it the second-largest area of giving behind religion (source: Giving USA). What has been driving donors’ commitment to education? The increasing cost of secondary education: tuition and fees have more than tripled (Source: CollegeBoard) in the past thirty years among state colleges, and have more than doubled during this period among private four-year programs (source: CollegeBoard, Trends in College Pricing 2018). 

Recognizing that these costs can be a barrier to education, many college-educated donors look back at their time at school as life-changing and want to pass on their experience to others. Some may have received scholarships themselves and recognize how crucial the support can be, while others might wish to extend the opportunities they’ve given their children to others. Support is fueled by various intentions, and similarly, scholarship comes in many forms. 

Though the process for supporting scholarships appears straightforward, the many options, rules, and regulations regarding what’s permitted can cloud decision-making. A close look at the various approaches to providing scholarships and financial aid, along with key factors to consider and to avoid, can guide individuals through the process to make deliberate, thoughtful donations that best support their goals.  

Exploring options
Step one of the giving journey involves breaking down the various forms of scholarship to give donors a clear understanding of the specific qualifications they can select from, and how they might design their donation to fit students’ needs. 

First, it is important to evaluate the differences between merit and need-based scholarships. Merit scholarships support students solely based on their academic or extracurricular achievements. For example, a merit-based gift might include giving toward students studying a particular field, such as women pursuing a degree in engineering, or students involved in the debate club or the cross-country team. Donors can keep these gifts broad so that more students qualify or can make them specific to meet the needs of a group that’s close to the heart. Comparatively, need-based scholarships are determined exclusively by the financial needs of students. 

Once donors have selected whether they prefer to make a merit or need-based commitment, the next step is determining a time horizon. A donor can make a one-time donation (known as current-use scholarship) or they can set up a permanent gift that provides a predictable and ongoing stream of financial support (known as an endowed scholarship). While giving directly to a college or university is relatively straightforward, donors might wish to expand their offerings beyond a specific educational institution to reach students of particular communities or areas of academic interest through community foundations or intermediaries, which are mission-driven organizations that effectively link donors with recipient organizations or individuals. For instance, a donor might choose a New York-based community foundation to fund a scholarship that supports students from New York City to attend a college or university of their choice. Depending on how these scholarships are structured, students are either awarded directly or the money is sent to the school and put towards tuition, fees, and expenses.