Private Scholarships vs. Merit Scholarships: What Families Need to Know

When families begin the college search, one of the first questions they ask is: “How can we get scholarships?” A quick Google search sends them down a rabbit hole of private scholarship websites, lenders pushing “free money,” and endless lists of $500 essay contests.

Here’s the truth most families don’t know:

👉 Private scholarships make up only 3–5% of all financial aid awarded each year.
👉 Merit scholarships from colleges make up the vast majority of real, renewable savings.

Understanding the difference between private scholarships and merit scholarships can save families time, stress, and thousands of dollars during the college planning process.

Let’s break down what you actually need to know.

What Are Private Scholarships?

Private scholarships are awards that come from outside organizations—not the college your student attends. These can include:

  • Local community organizations

  • National companies

  • Rotary clubs

  • Religious institutions

  • Employers

  • Nonprofits

  • Scholarship search sites

While these opportunities sound promising, they come with two major limitations:

1. They’re usually small and one-time only

Most private scholarships fall between $500 and $2,500 and are awarded for freshman year only.
That means they don’t reduce the long-term cost of a four-year degree.

2. Few students actually win them

Only about 33% of students apply for local awards, and even fewer pursue national ones.

3. They often trigger scholarship displacement

This is the shocker most families never hear about.

What Is Scholarship Displacement?

Scholarship displacement happens when a college reduces a student’s financial aid package after they receive an outside (private) scholarship.

Here’s how it works:

  1. Your student wins a $2,000 private scholarship.

  2. The scholarship provider sends the award directly to the college.

  3. Instead of lowering your bill by $2,000, the college reduces its own aid offer by the same amount.

Result:
👉 Your student is no better off than before—sometimes worse.

Many colleges reduce need-based aid, but some have even reduced merit aid, although that’s less common.

A few states—like Maryland—have laws limiting displacement, but for most families, it’s still a real risk.

Private Scholarships Are Not Bad—They’re Just Not the Strategy

Private scholarships can help, especially when:

  • A student has exhausted all college-based financial aid options

  • A student has unmet need the college won’t cover

  • You’re filling a small remaining gap after comparing final offers

But they should never be the starting point of your scholarship strategy.

Your time is better spent elsewhere—specifically on merit scholarships from colleges.

What Are Merit Scholarships?

Merit scholarships come directly from the colleges themselves.
They are awarded based on:

  • GPA

  • Test scores

  • Rigor of coursework

  • Leadership

  • Community service

  • Athletic or artistic talent

  • Special academic programs

  • Institutional priorities

Most importantly:

⭐ Merit scholarships are almost always renewable for four years.

⭐ Merit scholarships represent 95%+ of all scholarship dollars your student is likely to receive.

And colleges give them out for a simple reason:

👉 They want your student to attend.
Merit aid is part of their enrollment and marketing strategy.

Types of Merit Scholarships

1. Automatic Merit Scholarships

If a student meets specific GPA and test score cutoffs, they automatically earn a set amount.

Example:
University of Alabama publishes a clear chart showing exactly what ACT/SAT score equals what dollar amount.

2. Competitive Merit Scholarships

These may require:

  • Additional essays

  • Interviews

  • Portfolio submissions

  • Early deadlines

Competitive scholarships may cover full tuition or even full cost of attendance, but they are extremely rare and highly selective.

3. “Everyone Gets Something” Colleges

Some colleges—like Robert Morris—award merit scholarships to every admitted student, regardless of need. This makes them extremely predictable and family-friendly from a financial standpoint.

A Critical Warning: Not All Colleges Offer Merit Scholarships

This surprises a lot of families.

Around 100 colleges in the U.S. offer no merit scholarships at all.
These schools give only need-based aid.

Most of these colleges are:

  • Ivy League universities

  • Highly selective liberal arts colleges

  • Elite private institutions

  • Schools with large endowments

Examples include:

  • Harvard

  • Princeton

  • MIT

  • Amherst

  • Williams

  • Dartmouth

Even if your child is a valedictorian with perfect scores, they won’t receive merit aid at these institutions.

It’s not personal—it’s just part of the business model.

How to Maximize Merit Scholarships from Colleges

Here’s where families should spend their energy:

1. Build a college list with affordability in mind

Apply only to colleges where your student is likely to receive meaningful merit aid.

2. Use data, not averages

Colleges often advertise an “average merit scholarship,” but that number is misleading.

What matters is:

  • What percentage of students receive merit aid

  • The amount awarded to students with your child’s profile

  • Whether the award is renewable for four years

  • How the college treats outside scholarships

3. Apply early—deadlines matter

Some merit scholarships require applications by:

  • November 1

  • December 1

Missing an early deadline can cost thousands.

4. Keep grades strong during senior year

Colleges may increase merit awards if students show upward academic trends when appealing later.

5. Appeal for more merit

Yes, you can appeal for more merit—a LOT of families don’t realize this.

Colleges may offer additional scholarships if:

  • The student has updated grades or achievements

  • A competing school has offered a better package

  • Your family has financial changes

Private Scholarships vs. Merit Scholarships: Which Should You Prioritize?

Here’s the simple breakdown:

Focus on Merit Scholarships First

  • Bigger amounts

  • Renewable for four years

  • More predictable

  • Less competition

  • No risk of scholarship displacement

Use Private Scholarships as a Final Step

Your strategy should look like this:

  1. Build a financially smart college list.

  2. Maximize merit scholarships from the colleges themselves.

  3. Evaluate need-based aid.

  4. Appeal if necessary.

  5. Then—and only then—apply for private scholarships.

Final Takeaway: Don’t Chase the 5%. Go After the 95%.

While private scholarships create a lot of noise online, they’re not the path to making college affordable.

Merit scholarships—combined with strategic college selection—are the true drivers of lowering the cost of college for most families.

Focus your time where it matters most. Your budget will thank you.

private scholarships vs. merit scholarships, merit scholarships

Listen to the full episode where Matt and Peg break down private scholarships vs. merit scholarships!