How to Launch a Scholarship Program: A Comprehensive Guide

Establishing a scholarship program can yield numerous benefits, both for the benefactor and the beneficiaries. It's a powerful way to give back to the community, support education, and potentially enhance a company's public image. This article provides a comprehensive guide on how to start a scholarship program, covering everything from initial planning to long-term management.

Planning and Purpose: Defining Your Scholarship's Mission

The first step in creating a scholarship program is to clearly define its purpose. This involves determining the type of scholarship you'll offer and how funds will be allocated. Consider the following questions:

Who are you trying to reach? Will your scholarships be geared specifically to helping an underprivileged portion of your community? You need to determine which specific students you’re looking to reach. Are you looking to support first-generation students, community volunteers, or those entering specific fields?
What type of scholarship will it be? There are many different scholarship types out there, don’t limit yourself. You could provide scholarships in the name of a loved one, or a renowned professional in your organization; these could be given based on academic excellence, or something else that recognizes acumen in education. You might provide trade school support, or assets for students with a lot to overcome. Sports scholarships are regularly awarded. There are also scholarships given out on essays, or for students who have gone out and done something worthwhile for their community.
What criteria will be used to evaluate applicants? Determine whether awards will be based on financial need, academic merit, or a combination. Keep the scholarship eligibility criteria simple and aligned with your organization’s values. Will the scholarships only be for Christian college attendance, or for attendance at any accredited college?

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What is the overall goal? It all depends on what you think best realizes your corporate philanthropy program’s purpose. Are you opening it in memory of your grandmother who was a mathematician? Are you hoping to help kids from the neighborhood you grew up in?

Financial Planning and Structuring

Financial planning and structuring early on help to form a framework for other important considerations later. Having this framework outlined early helps to eliminate research and development of economically infeasible programs or timetables.

Funding Sources: Choose between annual donations, endowments, or corporate sponsorships. Be transparent with donors about how funds are distributed. Will you use tax breaks as a deferral solution? That is to say: Will you use philanthropy to increase the tax break your business gets and withdraw the scholarship funds from future tax savings?
Budget: How much are you looking to contribute? Where exactly is the money coming from? Even if you’re not sure how many students you want to sponsor or for how long, you should have some figures on how the scholarship will be funded and how it may impact your personal finances.
Tax Implications: Contributions to a scholarship program may be tax deductible if the pool of eligible recipients constitutes a sufficiently broad “charitable class” as defined by the IRS. That means donors can’t earmark funds for specific individuals.
Sustainability: Plan for growth: Will you increase the award amount, add recipients, or expand categories?

Establishing Timelines and Application Process

Once you’ve figured out the purpose of your scholarship, and how you expect to acquire funds, your next step is to set yourself a “due date” when your scholarship program will be live.

Timeline: You’ll want to consider the fiscal year, and where taxation will hit. You’ll want to plan about a year ahead. If scholarships are being given out for the fall semester, get the details ironed out the previous summer.
Application Method: Additionally, you’ll want to consider the application process. If you’re going to have hopefuls submit an essay and application, will they do it via print, in person, or through digital application software? Make the application mobile-friendly, since many students apply on the go. Provide clear FAQs, instructions, and examples of strong applications. Request only essential documents and information.
Advertising: Sometimes businesses raise scholarship money through fundraising, and additionally, you’re likely going to have to advertise in order to get applicants. One of the biggest shortfalls of church and ministry scholarship programs is failure to announce them.
Transparency: According to the National Scholarship Providers Association, clear and specific criteria can increase application completion rates by up to 30%, since students are less likely to abandon applications when expectations are transparent.

Evaluation Considerations: Review and Selection Process

You’ll need to look into evaluation solutions as well-will there be a review committee? Who will be the evaluators: volunteers or paid employees? And of course, you’ve got to determine how you’ll award the scholarship.

Review Committee: It is necessary that the program be board approved and that at least three individuals be appointed to serve on a selection committee. Create a consistent scoring rubric for reviewers. Use blinded reviews when possible to reduce bias. Document reviewer comments and maintain an audit trail for accountability.
Fairness: Applicants want to trust that decisions are made fairly. A transparent scholarship selection process protects your program’s credibility.
Award Ceremony: So it may be worthwhile to make an event out of an award ceremony. You might even award multiple scholarships, increasing the number as your ability allows.

Award Scope and Terms: Defining the Scholarship's Conditions

Will the award you give out be a one-time thing, or will it continuously renew? Certainly you could simply award a student with a check for a thousand dollars, or you could give them $2,000 a year until they graduate. It all depends on your organization’s philanthropic goals, associated tax necessities, funding strategies, and the kind of PR angle you’re looking to maximize.

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Terms and Conditions: Students can be brilliant and naïve simultaneously; you’ve got to have scholarship terms to protect them from themselves, and your business from their inexperience. It’s a good idea to incorporate terms students must abide by in order to receive continuing support. Of course, if you’re giving a one-time scholarship, this is less of a concern. The scope of the award, and how highly it’s publicized, will likely determine how stringent terms must be.
Transparency: Be clear on where individuals can pick up the application, when applications are due, any what documents are needed for the submission.

IRS Rules for Scholarship Programs

IRS guidelines for starting a scholarship fund will differ based on whether your scholarship is an individual grant or part of a scholarship program at your organization; businesses that help the community through scholarship funds are held to incredibly high standards by the IRS, and are only eligible for tax-exemption under certain circumstances, to ensure that the programs are being run for the benefit of the community and not the benefit of the company.

Objective Criteria: Your scholarship must provide objective criteria for selection, meaning recipients cannot be chosen arbitrarily or based on personal relationships alone.
Accredited Institutions: Scholarship recipients generally must be enrolled as students at accredited educational institutions, though eligible institutions can include undergraduate universities, graduate schools, technical programs, and certain vocational training centers.
Educational Expenses: To give a scholarship that is tax-free to recipients, the funds must support genuinely educational expenses such as tuition, fees, books, and required supplies. Scholarships to cover living expenses or other needs may be taxable for the student.
Taxable Expenditures: Company scholarship programs are held to the same standards as grants to individuals and are taxable expenditures unless they meet certain requirements.
Non-Employment Factors: The selection of scholarship grantees must be controlled and limited by substantial non-employment-related factors, including a selection committee separate from the private foundation, its organizer, and the employer concerned.

Tax Implications of Setting Up a Scholarship Fund

One of the most attractive benefits of establishing a scholarship fund is the immediate tax advantages available to donors. When you contribute assets to your scholarship fund, if you meet the criteria established above, your contribution will qualify for a charitable tax deduction in the year you make the gift, regardless of when scholarship distributions occur.

Deduction Limits:
- Cash donations: Up to 60% of AGI
- Appreciated securities: Up to 30% of AGI

Other Legal Requirements for Scholarship Funds

Establishing a scholarship fund comes with legal responsibilities that go beyond IRS compliance, encompassing ethics, and transparency. These include adopting non-discrimination policies, preventing conflicts of interest, ensuring transparency through regular updates, and maintaining meticulous recordkeeping. Compliance with state and federal laws is crucial, with scholarship management partners helping to navigate relevant regulations.

Partnering with a Community Foundation

Working with a qualified partner can eliminate the need to create a separate nonprofit organization, reducing complexity and administrative burden. The Community Foundation provides fund oversight, investment management, grant distribution administration, and compliance support-services that would otherwise require significant investment and expertise.

Benefits:
- Professional management and expertise
- Streamlined and efficient process
- Access to comprehensive infrastructure
- Compliance support
- Donor relations expertise

Tracking Long-Term Impact and Staying Engaged

The value of a scholarship doesn’t end with the award letter. Ongoing engagement ensures your fund continues to make an impact.

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Engagement: Collect updates and testimonials from recipients. Share alumni stories to inspire future applicants and donors. Use feedback to improve the scholarship program each year.
Impact Tracking: This type of scholarship impact tracking demonstrates that your fund is more than financial aid, it’s an investment in people and their future success.

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