What resources are available for setting up a scholarship fund?
Scholarship grants change the lives of their grantees by providing access to education, resources, and powerful networks. Some scholarship funds also leverage their programs to impact society in a broader way, aiming to change whole institutions, industries, and specific communities through these awards.
The resources you need to set up a scholarship fund depend on your goals for the scholarship fund and your method of operating it.
Will donations to the fund be tax deductible?
- A scholarship fund to benefit yourself or someone you know (a relative, a specific group of people designated by you) is not tax deductible.
- A fund that awards scholarships on an "objective and nondiscriminatory basis" is tax deductible for its donors.
Who can receive scholarship funding?
The IRS has guidelines on who can and cannot receive scholarships, as summarized by this FinAid article (find the "Laws and Regulations" section). Some key points for tax-deductible funds:
- Don't set up a fund for a specific person.
- Make sure the group that qualifies for your scholarship is general enough for the IRS to consider it a charitable class. Don't try to be sly by narrowing your criteria so that only the person or people you want can win.
- Don't give scholarships to insiders, like members of the selection committee, or to their family members.
How can I ensure that our scholarships make an impact?
Scholarships for Change is a website and set of tools designed to help donors increase the impact of scholarship giving. Developed by Candid, and funded by the Ford and Mellon Foundations, Scholarships for Change provides funding trend data, a map of related grants data, donor case studies, and a curated knowledge center that together serve to orient donors with a roadmap to effective scholarship philanthropy.
Below are other resources for setting up a scholarship fund:
- Your local community foundation or other scholarship fund managers—Scholarship funds often are set up and administered by a third party, such as a community foundation. Your local community foundation may have services to help you set up a scholarship fund. FinAid also lists organizations that provide scholarship management services (find the "Scholarship Management Organizations" section).
- A bank or credit union—You can set up an account to accept scholarship donations. However, be aware that large donations may be subject to a gift tax.
- 529 plan or trust—These two additional ways to set-up a scholarship fund have disadvantages to consider. The effort and expense of establishing a trust can significantly outweigh the benefit. And according to twocents.lifehacker.com, you might think about contributing to a parent's or student's 529 plan instead of setting up your own fund: "Distributions from an account not owned by the parent or student are considered untaxed income for the student, and therefore could seriously reduce the amount of aid they receive, giving your friends a major headache down the road."
- Crowdfunding—If you want to raise scholarship funds, crowdfunding is a viable option. Crowdfunding is a way to raise funds for a specific cause or project by asking a large number of people to donate money, usually in small amounts, and usually during a relatively short period of time, such as a few months.
You also can start your own organization, but starting a nonprofit may be the most complex option.
Check out these Candid resources:
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Explore resources curated by our staff for this topic:
Nonprofit Law Blog
Defines "charitable class" and how it applies to grants for individuals.
Council on Foundations
Community Foundation Locator
This extremely useful tool from the Council on Foundations has links to community foundations that provide aid to specific communities in all 50 states. It's a place to share and exchange marketing ideas and tools with other community foundations.
Company scholarship programs
Brief information on requirements and limitations for company scholarship programs.
Create a Winning Applicant Experience
More than 50% of students don't complete scholarship applications due to overly complex requirements and processes. Here you'll find tips to help you create a better, more intuitive application process that encourages a larger pool of applications, happier applicants and is effective marketing for your organization and program.
American Society of Radiologic Technologists
Developing an Educational Scholarship Program
Describes considerations and procedures for developing a scholarship program.
Disaster Relief: Providing Assistance Charitable Organizations
Pages 9-11 includes a definition and examples of "charitable class", the group of individuals that may properly receive assistance from a tax-exempt charitable organization. From Disaster Relief (Publication 3833). This IRS publication offers advice for individuals and organizations on how to give through existing U.S. charitable organizations, how to set up a new charitable organization, and the requirements for documentation of charitable gifts.
Describes four ways that donor-advised funds can provide tax-deductible scholarship support and has a list of frequently asked questions.
Grants to individuals
Describes the 3 main conditions that grants to individuals (including scholarships) must meet so that they will not be treated as taxable expenditures.
National Scholarship Providers Association (NSPA)
National organization dedicated solely to supporting the needs of professionals administering scholarships in colleges and universities, non-profits and foundations.
Scholarship Design & Management
Information and tips about how to create a scholarship program. Sections include: selection criteria, application process, laws and regulations, and management services.
Scholarships for Change
Scholarships for Change
Organizes scholarship resources by type of entity, scholarships goals, funding sources, and other key elements of scholarship philanthropy.
Setting Up a Scholarship
Brief explanations of different ways to set up scholarship funds.