What is an endowed scholarship?

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Endowed scholarships are a unique form of financial aid, known for being a bit more complex than regular scholarships. These scholarships are created to help fund higher education for many students over a long period of time.

With an endowed scholarship, a donor makes a large initial donation, creating an endowed scholarship fund. When a large amount is donated to an endowment fund, the money isn't given directly to students all at once. Instead, the money is invested. The interest earned on the invested money can then fund scholarships for years to come.

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How do endowed scholarships work?

To understand how endowed scholarship funds can continue giving to scholarship recipients year after year, you must first understand where that money comes from and why the endowed fund is not drained over time.

When a large, endowed sum is gifted to a college, the university manages the funds, investing the amount. The university then takes out scholarship money from the fund each year, only giving the percentage of the fund that was earned as interest.

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For example, if an endowed fund has $100,000 in it and the investment generates an interest rate of 10% a year, the fund will make $10,000 in interest during that first year. If the college takes only the $10,000 made from interest for that year, the investment will still have the $100,000 it began with and will continue to earn more interest each year. The amount the fund makes each year is considered its investment income.

Benefits of an endowed scholarship

A one-time donation large enough to qualify for an endowment fund is also beneficial, because that contribution can last a lifetime if invested.

Going back to the example from above, endowment funds are so helpful because if someone wanted to give a $10,000 scholarship each year, a $100,000 donation can last forever with a 10% interest rate. On the contrary, if that same donation was not part of an endowment fund, it would only last 10 years rather than lasting in perpetuity.

Aside from the apparent financial benefits of creating a scholarship endowment, it is also important to understand the effect this kind of donation can have. Scholarship endowments have the chance to gift many deserving students with the financial aid necessary to get their college education. That is a special gift that can help countless students with minimal effort by the donor once the initial contribution has been made.

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How to get an endowed scholarship

Scholarships that are endowed are offered specifically to the university they were gifted to. Students from one university cannot apply for an endowed scholarship at a different university. This is good news for students since there are fewer eligible applicants. This makes the scholarship less competitive and gives students a better chance of winning the scholarship.

Whether or not you get an endowed scholarship is often dependent on your application. The better you do on an essay, video, or other form of application, the better chances you have of winning. However, some of these scholarships may choose winners based partially on their financial need. Make sure to check the requirements and proceedings of the scholarship in order to better understand your chances of winning. The owners of the endowment fund are sometimes involved in choosing the winner of the scholarship, but in other cases, a committee through the university decides.

How to apply for endowed scholarships

For students applying for an endowment scholarship, the process isn't different than regular scholarships. Applications open at a specific time and accept applications until the deadline. During that time, students send in their applications, just like with regular scholarships. Pay attention to what is required of your application so that you can put your best foot forward for the committee.

How to create an endowed scholarship

The exact process for creating an endowed scholarship varies between institutions. Talk with the financial office at the school you are interested in creating an endowed scholarship for, and they will be able to help you proceed with your scholarship donation. One thing that is consistent between all endowed scholarships is the nature of the scholarship, meaning that the initial donation must be sizable. The exact minimum gift depends on the university, so make sure you are informed about the process before committing to it.

For donors thinking about investing in a scholarship fund, consider the benefits of an endowed scholarship fund. Donations of this kind give excellent tax benefits. Your donation can get a charitable deduction of up to 50% on your adjusted gross income.

Additionally, businesses or individuals who create a scholarship endowment are also building a great brand and reputation for themselves. Universities greatly appreciate such generous donations and will often recognize donors for their contributions and lasting legacies.

How universities use endowment funds

One of the key things about a scholarship endowment is that the university does not tap into the initial donated amount. The same initial donation remains year after year, regardless of how well the investments do. All the money donated upfront by donors stays the same, so the success of the investment will determine the scholarship amount given that year.

Universities often have a minimum amount required to create an endowed scholarship fund, but once it has been gifted, the amount generates interest year after year, which is then gifted to students in the form of scholarships. As a result, a single donation can create an endless supply of scholarships with careful management.

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Frequently asked questions about endowed scholarships

If you're wondering "what is an endowed scholarship?" chances are you have more questions as well. After all, when learning about the different types of scholarships out there to apply for, it can be confusing trying to understand each kind. To learn more, see below for answers to some of the most frequently asked questions about endowed scholarships.

What is the difference between an endowment and a scholarship?

When someone creates a regular scholarship, the money donated is given directly to the students. Therefore, if you want to renew the scholarship in the future, you will need to donate again later.

With endowments, donors gift a large sum of money with the intent of the fund lasting for a very long time. The actual amount donated is not gifted to students, since the money is invested, and the interest made is given instead.

In order for an endowed scholarship to work, however, the initial amount gifted must be great. This requirement isn't reasonable for every business or individual. Those who aren't able to fund a continuing endowed scholarship can create a regular scholarship, which doesn't require as much money upfront and gives directly to students.

What is a non-endowed scholarship?

Non-endowed scholarships are simply scholarships that do not involve an endowment fund and are therefore not permanent recurring scholarships. Non-endowed scholarships are the ones most students are used to, as they are not paid for from a fund gaining interest. Regular scholarships may be renewed, but that requires another donation from the donor's end, rather than a continuing endowed scholarship fund.

All types of scholarships are beneficial and have the potential to make a lasting impact on the lives of the winners. Regardless of whether a scholarship is endowed or not, applying is a great idea as each award can help tackle the high costs of college and any unmet financial need you may have. Whether a scholarship is merit-based, need-based, or based on an essay, it can go a long way toward funding your pursuit of higher education.

You can find scholarships from many sources, such as Bold.org, where you can search through hundreds of scholarships without any fees. Always check the criteria of each scholarship and be sure to put your best foot forward so you have a better chance of being awarded a scholarship and being able to afford your tuition.

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