What is an Endowed Scholarship?

Article Summary:

An endowed scholarship is donated money that can then be invested and managed so that interest is earned on the principal of the donation. Typically given to a college or nonprofit organization, the earned funds can then be used as a yearly scholarship given to deserving students. Although different organizations have different terms for scholarship endowments, most have a minimum endowment requirement of between $25,000 and $50,000.

Getting a college education can be an expensive endeavor, but one that is increasingly vital in the job market. Some students are able to turn to scholarships or other forms of financial aid to help bear the burden. However, these are one-time gifts that don’t provide much beyond the semester or academic year in which they’re awarded.

Endowed scholarships, on the other hand, offer the ability for lasting aid that goes beyond a single student or incoming class. The funds donated to the scholarship are invested, allowing the money the opportunity to grow and multiply before being offered to a student in the form of a scholarship. Endowments produce income for years and help a number of students instead of just one.

What is a scholarship?

A scholarship is financial support that is awarded to a student for educational purposes. This support can be given based on academic achievement, or other criteria that may include financial need or athletic achievement. The funds are used to cover the costs of tuition, books, room, board, and other expenses that are directly tied to a student’s educational costs while they attend school.

Scholarships are typically awarded based on a variety of factors, including academic achievement, departmental and community service or involvement, employment experience, areas of study, and financial need. The money isn’t invested — it is directly given to students.

IMPORTANT! Keep in mind that a scholarship differs from a student loan because scholarship funds don’t have to be paid back. However, there are other forms of student aid that you do have to pay back, so be sure to keep all of your college finances in order.

What is an endowed scholarship?

An endowed fund is different. The purpose of an endowed scholarship is to donate money that can be invested and managed by the school. The interest that’s earned on the principal of the donation can then be awarded as a yearly scholarship to students who need it.

An endowed scholarship continues to produce income for years and therefore helps a number of students instead of just one. Because of this, an endowed scholarship requires more money than a regular scholarship, but the gift should last for a much longer period of time.

How can you start a scholarship endowment?

The first thing you need to start a scholarship endowment is money. You can then speak to the entity you wish to donate to and decide on an amount for the fund. To establish an endowed scholarship, just submit the first installment of the fund and sign an application, which the entity will provide.

Once approved, a memorandum of agreement outlining the terms of the endowed scholarship will be sent to the establisher for their signature. Endowed scholarships are frequently funded by gifts of cash, but they don’t have to be. You can establish an endowed fund using transfers of stocks, bonds, mutual funds, real estate, and other types of property.

Pro Tip

To ensure a smooth and organized process when establishing an endowed scholarship fund, it’s a good idea to have any necessary information organized and sorted out before signing any application of agreement. This includes the funding details and donation amount, yearly donation limit, scholarship name, and eligibility details.

How much does it cost to endow a scholarship?

Different universities have different terms for scholarship endowments. That being said, most schools have a minimum endowment requirement between $25,000 and $50,000.

Once a scholarship has been endowed, you can continue to add to it while you’re alive or through a will or trust after you die. Cash is the most common way to fund an endowment, although you may be able to make an in-kind gift. The higher the endowment, the more money will be awarded to eligible students.

Who can endow scholarships?

Typically, wealthy and philanthropic people are the ones who contribute to endowment funds, but anyone invested in higher education can endow a scholarship with their extra funds. There may be many donors that come together to create a single endowment or a single person may fund all of it.

If you need some help organizing where your funds should go, you may want to enlist the help of a wealth management firm.

What are the benefits of an endowed scholarship?

There are several benefits to endowed scholarships. Whether you create one yourself or make contributions, endowed scholarships can be a great source of charitable giving.

  • Recognition. If you create an endowed scholarship fund, you can receive a fair amount of recognition for doing so. Donors can be invited to special events held by the university, have buildings named after them, and generally are entitled to certain privileges, such as tickets to athletic and cultural events.
  • Tax benefits. Tax benefits are a major advantage of endowed scholarships. If you make a cash gift while you’re alive, each year that you give, you can take a charitable tax deduction of up to 50% of your adjusted gross income. If your gift exceeds 50% of your adjusted gross income, you can roll over the difference to the following year for five years going forward.
  • Longevity. An endowed scholarship can provide a lasting legacy to those who play a role in their creation. Not only does an endowment fund benefit multiple students across several years, but this fund can also help future generations of scholarship recipients even after they leave the university.

What does it mean to receive an endowed scholarship?

The recipients of the scholarship funds are typically deserving students and/or incoming students at the university. By receiving an endowed scholarship, you are likely a student enrolled in higher education or other beneficiary of the scholarship fund. As an enrolled student, you will be able to attend the institution offering the scholarship at a free or discounted price, depending on whether it is fully endowed.

If you are the person gifting the scholarship, you can also have a minor role in deciding who receives the funds. For example, you can name a gender, race, state or country of origin, major, economic status, grade point average, and more. You can also have the option to name the scholarships.

What are other types of scholarships?

There are other scholarship opportunities beyond endowed scholarships and regular scholarships. While these other scholarships look different from an endowed scholarship, each scholarship offers student aid that helps provide valuable educational experiences.

Merit aid scholarships

A merit aid scholarship is a form of financial assistance that is awarded based on a student’s skill or academic accomplishments. This can include athletic or artistic abilities, high test scores, or good grades.

Merit aid scholarships can be a way for colleges and universities to attract top talent to their campuses while rewarding students for their hard work and skills. Typically, if students receive merit aid, they may be required to maintain their school work above a certain grade point average.

Government scholarships

Local, state, and federal governments also offer scholarships. These options vary across the country, so the requirements to qualify for this type of aid will also vary. For example, California offers a government scholarship specifically to those students that were in the foster care system.

Government scholarships can also go toward certain programs, such as helping students with financial assistance so they can study abroad.

Athletic scholarships

Athletic scholarships are a type of aid based on a student’s participation in a sport. Some athletic scholarships offer full rides that cover the entire cost of tuition, room, board, and books.

Athletic scholarships help college and university sports teams attract and recruit talent to play for them. Athletic scholarships also typically require that a student meet certain qualifications in addition to their athletic abilities, such as a minimum grade point average.

Key Takeaways

  • Opportunity cost refers to the returns a company missed out on by making a different decision.
  • The opportunity cost of capital refers specifically to the returns missed by investing funds back into a company.
  • On the other hand, the opportunity cost of holding money calculates the capital missed by holding money rather than investing it in some way.
  • To effectively choose the right investment vehicle, be sure to evaluate the opportunity costs associated with each option.

SuperMoney’s Financial Literary Scholarship

Scholarships offer more than just financial aid to eligible students. They also provide students in need with a better chance of achieving a higher level of education. With college expenses increasing each year, more and more students are looking for financial aid through a combination of scholarships, grants, and student loans.

If you’re a young student looking to enter college soon, you may be eligible for SuperMoney’s Financial Literary scholarship. To enter, we ask that you provide a design for the prompt listed on the submission page. Get started today to earn some extra cash towards your educational goals.

View Article Sources
  1. Endowed Scholarships — Wheaton College
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