How to Establish a Scholarship Through Your Non-profit or Foundation

Author: Jeff Bachus, EVP, Director, SBA Lending 12/13/2021

Establishing a scholarship through your non-profit or foundation can be challenging, but with careful planning and attention to detail, you can create and administer a new scholarship program efficiently. By taking the following steps in advance, you can effectively learn how to establish a scholarship.

Establish the Scholarship’s Purpose in Alignment with Your Organizational Goals

Starting with clear alignment of purpose will help you avoid eligibility and selection issues. For example, if your organization supports the promotion of equity in education, you may want to establish a scholarship that targets students in low-to-moderate income communities who aspire to obtain a college degree.

Define Eligibility Requirements

You should limit eligibility to the people you want to serve with your scholarship, such as residents of a specific geographic area. You might also consider academic achievements, financial need, socioeconomic status, age, or many other factors. In any case, it is important to demonstrate that your scholarship program doesn’t create unfair advantages for one particular group or subset of the pool of eligible recipients.

Create an Objective Selection Process

The key to defining your selection criteria is objectivity.  You can and should define criteria that align with your purpose and mission, but the process must be non-discriminatory, and it should be very clear to all applicants exactly how finalists and recipients will be selected.

Determine How to Fund the Scholarship

The next step is to decide how to fund your scholarship. This can be accomplished by planning for it in advance out of your own budget or by accepting donations and contributions to support it. Any money raised for the award fund must be spent on the award itself as per the terms of your nonprofit status. You must also decide whether you will pay the scholarship directly to the recipient or to the institution that he or she will attend. Keep in mind, if you pay the student directly, certain IRS requirements must be met to ensure the funds do not count as taxable income. In these situations, consulting a tax attorney or other qualified financial professional is strongly recommended.

Learning how to establish a scholarship through your charity or foundation is a complex endeavor but can be very rewarding. By following these steps, you can create a solid foundation and position your scholarship for success. To learn more about how PlainsCapital Bank can help you manage your nonprofit entity, please visit our Nonprofit Organizations section.

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