It is National Scholarship Month, which means high school seniors are being exhorted to scoop up free money for college.

What they are often not told is that scholarships won from corporations, nonprofits and other “outside” sources can reduce — dollar for dollar — the grants and cost-reducing financial aid they might get from colleges.

Students with financial need should be aware of this potential disincentive before they spend countless hours pursuing scholarships that may leave them no better off. The same scholarships could, however, benefit affluent families by reducing the amount they have to pay or borrow.

Casey Lu Simon-Plumb, a sophomore at Swarthmore College in Pennsylvania, won more than a dozen scholarships during her senior year of high school, including a $20,000 Coca-Cola Scholars Foundation award.

She thought her winnings would dramatically reduce the $60,000 annual cost of attending the school.

Instead, the outside money replaced other aid Swarthmore had offered her, leaving her family’s contribution about the same.

Federal rules require schools to reduce need-based financial aid when students win outside scholarships to ensure that their total financial aid does not exceed their costs by more than $300.

Read the whole post: http://www.startribune.com/college-scholarships-are-not-free-money/352032061/