What is a Scholarship & How Do Scholarships Work?

Contents

1. What are scholarships?
2. Where do scholarships come from?
3. What are the main sources of scholarships and grants?
4. Scholarship FAQs for high school students and parents
5. Are you looking for scholarships?

Paying for college with scholarships is a smart move—but a lot of students aren’t entirely sure how they work.

How is scholarship money given out? What can you use it for? Where do you even find scholarships? If these questions sound familiar, don’t worry—we’ve got you covered.

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What are scholarships?

Scholarships are financial awards that help students pay for undergrad or grad school. Some come as a one-time payment, while others renew every semester or school year.

Unlike student loans, scholarships don’t need to be paid back—so no, you don’t owe anything if you land one.

Sometimes, the money goes straight to you as a check. Other times, it’s sent to your school. If that happens, you’ll cover any remaining costs (like tuition, fees, or housing), and if there’s leftover money, it’s refunded to you.

Where do scholarships come from?

Scholarships come from all sorts of places—clubs, charities, businesses, colleges, the government, and even individuals. They can be based on merit (like grades or talents), financial need, or a mix of both.

• Merit-based scholarships reward achievements—high grades, test scores, sports, arts, or community service. They usually have specific requirements to qualify.
• Need-based scholarships depend on your financial situation. Things like family income and expenses are considered, often after you fill out the FAFSA or CSS Profile.

Some scholarships combine both merit and need, so always check the details before applying.

What are the main sources of scholarships and grants?

There are four big sources of free money for college:

1. Federal grants (47% of all aid)
   • The government hands out about $120 billion yearly, mostly for financial need (not merit).
   • You must fill out the FAFSA to qualify.
   • Expert tip: Even if you think you won’t get aid, submit the FAFSA—millions in Pell Grants go unclaimed every year because students skip it.
   Types of federal aid:
   • Pell Grants – Biggest federal grant, mostly for families earning under $40K/year. Max award: $6,895 (2022–2023).
   • FSEOG – For students with “exceptional financial need.” Awards range from $1,000–$4,000 (limited availability).
   • Education tax benefits – Like the American Opportunity Tax Credit (AOTC) and Student Loan Interest Deduction.
   • Military aid – Includes GI Bill, ROTC scholarships, and tuition assistance.
   • Federal loans – Direct Loans (up to $31,000 over 5 years) and PLUS Loans (for parents/grad students).
2. State aid (8% of all aid)
   • Almost every state offers grants or scholarships.
   • Southern states often reward grades/test scores; East/West Coast states focus more on need.
   • Check your state’s programs via .
3. School grants & scholarships (35% of all aid)
   • Colleges award merit aid (based on grades/scores) and need-based grants.
   • Top-tier schools often only offer need-based aid—no merit scholarships.
   • Always use a net price calculator to estimate costs.
4. Private scholarships (10% of all aid)
   • From companies, nonprofits, religious groups, etc.
   • Most are under $4,000 and last one year.
   • Odds of winning? About 1 in 8.

Scholarship FAQs for high school students and parents

How can I spend scholarship money?
If the check is in your name, you can spend it on anything—but it’s best used for school costs (tuition, books, housing, food, etc.).

How are scholarships awarded?
Each has its own rules—some look at grades, others at financial need, talents, or even where you live. There’s something for everyone!

Who can apply?
High schoolers, college students, and adults going back to school. Check each scholarship’s requirements.

When should I start applying?
The sooner, the better! Some scholarships open as early as junior year.

Where do I find scholarships?

• School guidance offices
• College financial aid offices
• Online searches (Fastweb, Scholarships.com, Appily)
• Local clubs/businesses

Do I pay taxes on scholarships?
Money used for tuition/required books is tax-free. Other expenses (like rent) may be taxable.

What if I don’t win?
Keep applying! Also explore grants, work-study, and loans.

Are you looking for scholarships?

Boost your college funding by browsing Appily’s scholarship database. We’ve got millions in legit, scam-free awards—plus you’ll automatically be entered for our $1,000 Easy Money Scholarship (given monthly!).