Getting an education in the United States is expensive--so expensive, in fact, that the majority of individuals hope to get scholarships to defray the cost of a degree. Sometimes people overestimate the amount of financial assistance they will need to get an education, or their circumstances change what they'll pay (e.g., opting for a cheaper community college instead of a private college). This may leave them with more scholarship money than they need.

Notifying the Provider

The first thing to do if you discover you don't need some or all of a scholarship is to contact the scholarship provider. Each provider will have different regulations on how to handle extra funds. Contact the provider in writing to explain why you do not need the funds. Because most scholarship providers issue the scholarship funds directly to your financial institution, you also will need to notify your financial aid department so they can adjust your award package.

Giving the Funds Back

Ideally, you should give back any funds you will not use to the scholarship provider. The rationale is that the scholarship provider can redistribute the funds to someone else in need. However, this depends on the provider. If you don't need the funds immediately but know you will use them in the future, your provider may allow you to keep the funds for later for continuing education, provided you explain exactly why you won't immediately use the funds.

Tax Considerations

The IRS allows you to get scholarship money tax-free. However, this only applies if you "are a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regular enrolled body of students in attendance at the place where it carries on its educational activities; and amounts you receive as a scholarship or fellowship grant are used for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses of instruction." This basically means that, if you have extra scholarship money you don't use toward qualifying educational expenses, you have to report the scholarship money as taxable income. It thus is financially to your benefit to find a way to use the money in education or to return it.

Misappropriation of Funds

When extra scholarship money is available, it is extremely tempting to use it for non-educational expenses such as a down payment on a car or new clothes. However, most scholarship agreements specifically state that you have to use the funds only for education. To use the money in other ways is a violation of the scholarship agreement. If the scholarship provider finds out you have used funds improperly, they may revoke the scholarship and take legal action requiring you to repay what you have spent. If you aren't sure what a scholarship provider considers a legitimate educational expense, ask before you spend a dime.

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