Endowed Scholarships - Definition, and How to Manage Them

College tuition continues to rise each year, making higher education increasingly unaffordable. Now more than ever, many students desperately need scholarships and financial aid to achieve their academic dreams without being burdened by a lifetime of student-loan debt. If you want to make a lasting impact by helping students pay for college, an endowed scholarship is a powerful option to consider. But, what is an endowed scholarship and how do they work?

If you’ve ever asked yourself questions like these, this post is for you. Read on and you'll come away understanding why endowed scholarships create a legacy that goes far beyond a one-time donation.

What is an Endowed Scholarship?

An endowed scholarship is a fund that is set up to provide financial aid to students in perpetuity. Unlike a one-time scholarship, an endowed fund is designed to award scholarships annually by using the interest earned on the initial donation.

Scholarship endowment

A scholarship endowment is a financial fund established by donors or institutions to support educational scholarships in perpetuity. The principal amount remains intact, while the interest generated provides recurring funding for scholarships. This ensures sustainable support for students pursuing higher education, promoting academic excellence and accessibility.

How Does Scholarship Endowment Work?

When you make a donation to start an endowed scholarship, the funds are invested by the university. Each year, a portion of the interest earned on the investment is used to fund scholarships for deserving students. The remaining interest is reinvested to ensure the fund continues growing. This allows the endowment to provide scholarships indefinitely, without ever touching the initial donation amount.

The donor works with the university to determine criteria for awarding the scholarships, such as merit, financial need, specific majors, or other requirements. The donor can also decide on a name for the endowment and be recognized by the university for their generous contribution.

The minimum donation required to start an endowed fund is usually substantial, often $25,000 or more. Some donors make a large lump-sum gift, while others commit to donating installments over a number of years to reach the minimum level.

Why Should You Give an Endowed Scholarship?

Creating an endowed scholarship shows a long-term commitment to helping students afford higher education. It leaves a lasting legacy by providing funding for generations of students to come.

In addition to assisting students, endowed scholarships also come with benefits for the donor. You may receive naming rights, invitations to university events, tax deductions, and the satisfaction of supporting a cause you care about. Establishing an endowment creates positive publicity and goodwill for your personal reputation or business.

If you have the financial capacity to make a substantial contribution, an endowed scholarship allows you to make a difference in many students' lives for years to come. It is a highly rewarding way to pay tribute to a loved one, give back to your alma mater, or promote a field of study important to you or your company.

Can Anyone Create an Endowed Scholarship?

No, not just anyone can create an endowed scholarship. Below are some key points on who can start an endowed scholarship fund.

Must be set up at an institution

Endowed scholarships are established at colleges, universities, high schools, or other educational institutions. Individuals cannot independently create endowed scholarships.

Approval and partnership with institution is required

The educational institution must approve the creation of any endowed scholarship fund. The donor works closely with the school's gift planning office or foundation to establish the details.

Substantial initial funding is also required

The donor must make a sizable upfront donation, usually $25,000 or more, to seed the endowed fund. The school sets this minimum funding level.

There is a long-term commitment expected

Endowments are intended to fund scholarships indefinitely. The donor cannot later reclaim or repurpose their initial funding, so it requires a long-term philanthropic commitment.

Tax implications

Deductibility of contributions depends on the institution's nonprofit status and if the donor relinquishes control of the funds. Note: These implications vary by state. You should talk to a CPA and perhaps a lawyer too before jumping into an endowed scholarship partnership.

Who it’s named after is not always a guarantee

Naming the scholarship after the donor or honoree requires approval from the school.

Ongoing support advised

While not required, donors are encouraged to continue making contributions after establishing the endowment to grow the fund over time.

So in summary, individuals or organizations must follow the specific process set by an educational institution to successfully create an endowed scholarship fund. It is not something just anyone can do independently. Proper setup is key.

What Are the Steps to Take If I Want to Establish an Endowed Scholarship?

These are the typical steps to take if you want to establish an endowed scholarship fund:

Choose the institution

Decide which school or university you want to partner with to set up the endowed fund. Consider your relationship to the institution.

Determine fund criteria

Work with the school to decide the parameters for awarding the scholarships, such as by academic merit, financial need, specific field of study, etc.

Name the fund

Pick a name, often one that honors a person or family. Again though, the name must be approved by the institution.

Make the initial donation

Contribute the minimum amount required by the school to establish the fund, usually $25,000 or more. This seed money is invested.

Sign an agreement

Formalize the scholarship details and terms in a gift agreement contract with the educational institution.

Claim tax benefits

Depending on your state’s tax laws, you may be able to receive tax deductions based on IRS regulations and the school's nonprofit status.

Create an application and promote the scholarship

Get the word out so students apply for the award you've established.

Using a program like SmarterSelect makes it much easier to manage your scholarship applications.

Award scholarships

The school gives scholarships annually to selected recipients based on the defined criteria.

Fundraise to grow the fund

Consider soliciting additional gifts over time to increase the endowment fund and enable more awards.

Track the impact

Receive updates from the school on the students benefiting from your scholarship each year. Not only does this help you with your fundraising efforts, it’s always fun to see how much good your fund is doing.

With proper planning and commitment, these steps can establish a scholarship endowment to educationally empower and motivate students for generations.

How Do Candidates Go About Being Selected as Recipients of an Endowed Scholarship?

First, a hopeful candidate would research scholarships and endowments at colleges or organizations they are affiliated with or interested in attending. Many institutions list available endowed scholarships on their website or in their academic catalogs.

Once they find a scholarship they are eligible for based on criteria like field of study, grades, financial need, etc…, the next step is to review the application requirements carefully.

Typically, next they will prepare all required application materials, which may include transcripts, essays, letters of recommendation, and of course the application itself.

All that is left after that is to wait and see who is chosen as a recipient. In most cases, once the decisions are made, recipients will be informed privately first, and then once both parties agree on the terms of the scholarship, the recipients will be publicly announced.

The scholarship funds will then be paid out according to the endowed scholarship's normal disbursement process and applied towards your tuition or expenses. Once recipients begin using the funds, they often have to provide additional paperwork and meet certain requirements to continue receiving funding.

It’s important for recipients to remember to renew their endowed scholarship application each year they are eligible as many awards are usually not automatically renewed.

How SmarterSelect Can Help You Manage an Endowed Scholarship

Managing an endowed scholarship program can be a tedious and time-consuming process. From collecting applications to selecting recipients, the administrative workload is immense. That's why over 600 organizations worldwide trust SmarterSelect to simplify and automate their scholarship management.

Here are just a few ways it helps streamline the process:

• Application collection and processing
• Eligibility screening
• Review and evaluation
• Streamlined selection
• Managing award disbursement.

In short, SmarterSelect optimizes the entire life cycle of your endowed scholarship program - from outreach to recipient selection and award management. We remove the administrative headache so you can focus on supporting students. Plus our best-in-class support is always available to ensure your success.

See for yourself how SmarterSelect takes endowed scholarship management to the next level with a demo today! Click here to get started.