Maximizing Scholarship Funds: Investment Strategies For Students

Scholarships are a great way to support students in their academic pursuits, and setting up a scholarship fund is a rewarding way to give back to the community. When it comes to investing a scholarship fund, there are a few key steps to consider. Firstly, it is important to determine the amount of money you want to dedicate to the scholarship program. This can vary depending on the type of scholarship you want to create, such as one-time, renewable, or annual scholarships. Endowed scholarships, which are permanent funds where only the interest is used to award scholarships, typically require larger sums of money.

Once the budget is decided, the next step is to identify the specific criteria for eligibility, including academic requirements, leadership and extracurricular activities, and demographic information. It is also important to consider the application process and program deadlines. After finalising these details, the necessary paperwork can be completed, and the scholarship can be advertised to attract applicants.

While setting up a scholarship fund can be done independently, it is often a complex and costly process. Alternatively, individuals can work with scholarship management organisations or institutions that can help with the administrative tasks and ensure compliance with legal requirements. These services usually come with a fee, but they can make the process more accessible and less time-consuming. Overall, investing in a scholarship fund is a great way to support students and make a lasting impact on their educational journeys.

Determine your budget

Determining your budget is a crucial step in setting up a scholarship fund. It involves deciding how much money you want to dedicate to the fund and considering the different costs associated with establishing and managing the scholarship. Here are some key points to help you determine your budget:

Amount to Dedicate to the Scholarship Fund

You don't need a large amount of money to start a scholarship fund. While some endowed scholarships at universities may require tens of thousands of dollars, you can establish a scholarship fund with as little as $500, especially if you use scholarship management services. When deciding on the amount, consider your financial situation, the scope of the scholarship, and any guidelines from organisations you partner with.

Costs to Consider

When determining your budget, it's important to factor in the costs associated with setting up and managing the scholarship fund. Here are some expenses to keep in mind:

• Legal fees: Hiring a lawyer or legal advisor to ensure compliance with regulations and requirements.
• Administrative fees: Charges by the managing organisation or platform, which could be a percentage of the fund or a flat rate.
• Advertising and marketing: Promoting the scholarship to attract applicants can incur costs.
• Application management software: Fees for using platforms or software to handle applications.
• Scholarship management services: If you outsource the management of the scholarship, it can be expensive, reducing the funds available for the scholarship awards.
• Endowed scholarship requirements: If you choose to create an endowed scholarship, you will need a larger sum, typically ranging from $10,000 to $25,000 or more, to ensure a sustainable fund.
• Nonprofit organisation costs: If you decide to create your own nonprofit organisation, there will be legal fees, advertising expenses, and costs associated with building a professional website.

Sources of Funding

When considering your budget, you can explore various sources of funding for your scholarship. While cash is the most common option, you can also tap into other assets, such as high-value stocks, valuable artwork, real estate, or life insurance policies. Don't forget to consider the tax implications of each funding source.

Type of Scholarship

Think about the type of scholarship you want to create when determining your budget. Do you want to provide a one-time award, a renewable scholarship, or an annual scholarship? Will it be for a specific academic year or open for applications during specific months? These decisions will impact the amount you need to budget for the fund.

Identify the type of scholarship

Identifying the type of scholarship you want to set up is an important step in the process of establishing a scholarship fund. Here are some common types of scholarships to consider:

• Academic Scholarships (or Merit Scholarships: These scholarships are awarded to students who demonstrate exceptional academic achievement or skill in a particular area. This could be based on factors such as cumulative GPA, test scores, or other academic criteria. Academic scholarships can be provided by high schools, colleges, nationally recognized organizations, states, counties, cities, or local associations.
• Athletic Scholarships: Athletic scholarships are offered by colleges and universities to a select few student-athletes who excel in their sport. To continue receiving funding, students are typically expected to maintain satisfactory academic performance. It is important to note that only a small percentage of high school athletes receive athletic scholarships to compete in college.
• Extracurricular Scholarships: These scholarships are available to students who participate in extracurricular activities such as dancing, acting, drawing, or clubs like Boy Scouts or Key Club.
• Student-Specific Scholarships: This category includes scholarships based on the student's personal situation or affiliation. Some examples include religious scholarships, first-generation scholarships (for students who are the first in their family to attend college), alumni scholarships (for students with family members who are alumni of the same institution), identity-based scholarships (for BIPOC, women, LGBTQIA+, or other specific groups), heritage-based scholarships, and scholarships for students with learning disabilities.
• Need-Based Scholarships: Need-based scholarships are awarded to students with demonstrated financial need. Applicants may be required to provide proof of financial need, such as income documentation or FAFSA® information. These scholarships are often offered by national organizations, states, local communities, or the students' schools.
• Employer Scholarships: Employer scholarships are provided by companies to their employees or their employees' children. In addition to having an affiliation with the employer, applicants may need to meet other eligibility criteria.
• Military Scholarships: Military scholarships are available for students who currently serve or have served in the armed forces, particularly those who have participated in ROTC. These scholarships are sponsored by private and public entities.
• STEM Scholarships: STEM scholarships support students pursuing college education in science, technology, engineering, or math disciplines. Some scholarships in this category are specifically for students from minority groups.
• Major-Based Scholarships: These scholarships are offered based on a student's chosen college major. They can be provided by college departments, the school itself, or private organizations that want to encourage students to pursue a particular area of study.
• No Essay Scholarships: No essay scholarships do not require a written essay or personal statement as part of the application process. Instead, they may ask for alternative submissions such as videos or other creative works.

Choose eligibility criteria

Deciding on eligibility criteria is a crucial step in setting up a scholarship fund. This will help ensure that your financial assistance reaches the right recipients and prevent you from being inundated with too many or unqualified applications. Here are some common eligibility criteria to consider:

Academic Achievement

One of the most common requirements for scholarships is academic merit. This is typically assessed by looking at the applicant's GPA, the classes they took, and their performance on standardised tests such as the SAT or ACT.

Financial Need

Many scholarships are awarded based on financial need. This often involves requiring that the applicant's family income falls below a certain amount, which can be easily verified through tax documents, payroll stubs, etc.

Geographic Boundaries

Another popular criterion is geography. If you are looking to hire the student once they graduate, you may want to restrict the scholarship to those attending college in a specific region. This also allows you to serve a particular community that your organisation serves.

Current Employees or Family Members

You may choose to restrict applicants to current employees or immediate family members of current employees. This can be an excellent perk for employees with children who are nearing college age. However, be careful not to place restrictions that are too stringent, or you may not receive any applications at all.

Demographic Restrictions

Demographic restrictions are often used to level the playing field and give marginalised individuals similar opportunities. This can be based on the demographics of your employees, institution, or community. For example, you may want to support students from underrepresented backgrounds.

Field of Interest

You may want to encourage individuals to enter a specific field of study, which could aid in recruitment or fulfil a human resources shortage. For instance, you could offer a scholarship for STEM students.

Extracurricular Activities and Leadership Skills

Participation in extracurricular activities and leadership skills are common requirements for merit-based scholarships. Students may need to be top performers in a particular field or demonstrate exceptional abilities in athletics, arts, music, or other pursuits.

Submission Requirements

Most scholarships require applicants to submit additional materials such as essays, videos, letters of recommendation, or other information. These submissions allow you to learn more about the applicants and their suitability for the scholarship.

When establishing eligibility criteria, it is important to be clear and specific to make the application review process more efficient and effective.

Complete the paperwork

Completing the paperwork is a critical step in establishing the legality and financial integrity of your scholarship fund. Here is a detailed guide on what this process might look like:

File the necessary documents:

Firstly, determine the type of organisation you are creating. Scholarship funds typically fall under the category of grant-making foundations, which are recognised as tax-exempt entities by the IRS. You will need to submit the appropriate paperwork to the IRS and your local state government to secure and maintain this tax-exempt status. This process can be complex and costly, so consider hiring a lawyer and a financial advisor to ensure you meet all the requirements.

Register your organisation:

To establish your scholarship fund as a separate legal entity, you will need to register it with the appropriate authorities. This may involve filing registration paperwork with your state and the federal government. The specific process will depend on the type of organisation, its size, and the amount of the scholarship fund.

Open a bank account:

You will need to fill out an application and sign any necessary documents to open a bank account for your scholarship fund. This will facilitate the transfer of funds and the management of financial transactions associated with the fund.

Draft legal agreements:

Draw up contracts with your accountant and/or investment advisors outlining how the scholarship funds will earn interest. This could include investing in stocks and bonds, low-risk mutual funds, money market funds, or hedge funds. Ensure these agreements comply with relevant financial regulations and are in the best interest of the scholarship recipients.

Establish partnerships:

Collaborate with sponsors, donors, universities, and committee members by drafting and signing agreements. These partnerships will help support and promote your scholarship fund, as well as ensure its long-term sustainability.

Maintain compliance:

Stay up to date with any ongoing reporting or compliance requirements. This includes filing any necessary paperwork with the proper agencies to maintain the legality and tax liabilities of your scholarship fund. Consult with legal and financial professionals to ensure you are meeting all applicable standards and regulations.

Remember, the specific paperwork required may vary depending on your organisation's structure, location, and other factors. It is always a good idea to seek professional advice to ensure you are complying with all relevant laws and regulations.

Set up the scholarship

Setting up a scholarship fund is a meaningful way to help students in your community. Here is a step-by-step guide to help you get started:

Identify your goals and values

Think about the type of students you want to support and the impact you want to create. Do you want to help first-generation college students, women, or underrepresented minorities? Are you interested in supporting students who have reached specific academic milestones or maintained a certain GPA? Perhaps you want to support students pursuing specific majors or high-demand career fields. Establishing these goals will help you communicate your vision to potential donors and make your fundraising efforts more successful.

Determine your budget and funding source

The amount of money needed to start a scholarship fund varies depending on the type and scope of the scholarship. You can start a scholarship fund with as little as $500, but some organizations and institutions require a minimum of $10,000 to $25,000 for an endowed scholarship. Endowed scholarships are permanent funds where only the interest is used to award scholarships.

When deciding on your budget, consider the cost of higher education and whether you want your scholarship to completely cover a year of tuition for one student or be spread out in smaller amounts to help multiple students. You can fund your scholarship with cash or tap into other assets such as stock, valuable artwork, real estate, or life insurance policies.

Choose a framework for your scholarship fund

There are three primary frameworks for setting up a scholarship fund:

• Community foundation: Board-led public charities that play a critical role in identifying and addressing community problems. They manage financial gifts, vet scholarship applicants, handle disbursements, and perform administrative tasks. Community foundations offer tax deductions of up to 60% of the benefactor's adjusted gross income (AGI) on cash gifts.
• Private foundation: Individuals, families, or corporations can use private foundations to offer charitable endowments. This option gives more control over the management of scholarship funds, but private foundations must establish their own standards and processes for objectively vetting recipients and disbursing funds while adhering to IRS rules and best practices. As a 501(c)(3), a private foundation can provide tax deductions of up to 30% of AGI on cash gifts.
• Institution-based: Working directly with a college or university to establish a scholarship. The school can manage the selection process, disbursement, and administrative tasks. Since colleges and universities are tax-exempt, benefactors can expect similar tax deductions as with private foundations.
• Complete the necessary paperwork

The process of setting up a scholarship fund involves some legal and administrative tasks. If you are creating your own nonprofit organization, you will need to hire a lawyer and a financial advisor, build a professional website, and be prepared for significant legal fees and ongoing administrative costs. You will also need to file extensive paperwork with the IRS and your state government to secure and maintain tax-exempt status.

Alternatively, you can work with a scholarship management organization like Bold.org, which will handle the administrative work, legal fees, and advertising for you. They can help you establish a scholarship fund at no cost, and you can leverage their large database of students to attract applicants.

Set up the scholarship

With your fund established and donations coming in, it's time to choose a name for your scholarship, decide on the application deadline, and finalize the eligibility criteria based on the goals you established earlier. If you are using a scholarship management platform like Bold.org, they will guide you through this process and ensure everything is in place for a smooth launch. Once everything is set up, you can begin accepting applications and selecting deserving recipients.

By following these steps, you can create a scholarship fund that aligns with your values and makes a meaningful impact on the lives of students in your community.

Frequently asked questions