Maximize Your Scholarships: A Step-by-Step Guide to Making Tax-Free Scholarship Income

Why You Should Try and Graduate Student Debt-Free

With the increasing prices of books and tuition, the cost to acquire a post-secondary education can be staggering. It is quite normal for students to graduate with tens of thousands, even hundreds of thousands of dollars in debt! Federal student loan debt is similar to tax debt in the way that it can never be dismissed, even through bankruptcy. Furthermore, if you are waiting to be saved by the infamous “student loan forgiveness” programs, good luck. You could be waiting twenty years or longer. Therefore, why not try to prevent the issue before it begins?

The benefits of graduating without student debt are severely underestimated. Have you ever paid off a debt you have stressed yourself over and thought, “Phew. Now I can finally breathe a little!” The overall psychological constraints of owing a creditor in general feels demoralizing. Dave Ramsey says it best: “The borrower is always slave to the lender.” Only once that debt is paid can you finally feel empowered and free.

Now just imagine yourself not only leaving school with absolutely no student loan debt, but actually making tax-free income from your earned scholarships, grants, and financial aid. If it sounds too good to be true, it’s not! I will show you how exactly I earned tens of thousands of dollars in non-taxable income by obtaining scholarships, grants, and financial aid.

How to Best Improve Your Chances of Obtaining Scholarships and Grants

The following are tools that I’ve used to accomplish my needs to complete my four-year education. I was grateful enough to have each semester of my school and living expenses 100% paid for and then some. There may very well be other ways to accomplish the same debt-free goals. My overarching goal is to help explain how each method increases your odds of obtaining a scholarship or grant.

Some ways to think of these strategies are as ways to increase your odds to be the number one candidate. Many factors bear heavier weight than others. Empathy, when used correctly, is a wild card that can outweigh all. At the end of the day, it comes down to how well you can sell yourself with the evidence to back yourself up.

First, I will explain the strategies themselves and how to apply them step by step. Finally, I will explain how you can profit tax-free! Relax, grab a notepad, and get ready to take action!

Key Strategies

#1 Start applying early!

You will want to begin applying as soon as you can. For one, it is easy to become distracted and procrastinate as a result. There are a few perks to being one of the first to submit. Most students do procrastinate, meaning those who submit early can make an easier good first impression before all other applicants begin to flood in. It will also show the donor a reflection of good punctual character. Be the candidate who sticks out from the beginning, and you will set their standard.

—How do I know which scholarships/grants I should apply for?

The answer is more obvious than you think. Apply to any and everything you can that makes logical sense and does not require you to lie. If you find yourself questioning if you would qualify, apply anyway. You want to try and have flexibility here. Be like water in the way that you are always trying to find the easiest way in. One application may require critical thinking to make a difference in the world while another wants to know about your hardships. The takeaway here is to reshape your key to fit each different lock.

SAVE YOUR WORK!!

Too many times I have made the critical mistake of creating an ideal masterpiece only to have it disappear forever once the web page refreshes. I think we all can relate to that in one way or another. Trust me, nothing will piss you off more.

Most scholarship website pages, including your school, should have a saved custom profile that you fill out and edit as necessary. This makes filling out several applications as easy as going down the list and clicking the ‘apply’ button to all that are relevant.

Even then, when the application requires you to write a customized essay you will want to copy and paste the prompt into Microsoft Word, then type your responses there. We do this for a few reasons. First, you know your work will always be saved. Second, you can modify and use what you wrote again for future applications. Many applications have similar essay questions. This is not plagiarism as long as what was written was yours to start with. It may be an extra step, but it will save you hours in the long run (extra tip: do this with job applications as well).

Your school should have a dedicated portal page specifically for available scholarships and grants. Most of which have different deadline dates. If you have trouble finding this page, contact your advisor and/or the student library. Scholarships and grants do not all need to be directly through the school. Always search for relevant scholarship opportunities.

#2 Take Advantage of Any Federal/State Student Aid

This goes hand in hand with applying early. Complete your FAFSA as early as possible. Did you know that students who submit their FAFSA earlier get twice as much federal aid than students who wait until later? Federal funds are typically given on a first come, first serve basis. I learned this the hard way. I could have received several thousands more during my first few semesters if I had simply applied earlier.

https://www.ascentfunding.com/blog/reasons-to-file-fafsa-early/#:~:text=You%20can%20often%20get%20more,come%2C%20first%2Dserved%20basis.

Alongside FAFSA, see if you qualify for any state scholarships. For example, in Wyoming, we have the Hathaway Scholarship available to all Wyoming high school students. It is based on grades and ACT scores and is a blessing to students wishing to continue their education.

#3 Take Advantage of Any Transfer-Related Scholarships

Whether you’re transferring from a community college to a university or university to university, please look into this! Schools often give easy scholarships just for the act of transferring schools! While I made my transition to the University of Wyoming, I missed out on a scholarship that paid $2,000 per semester for four semesters! Yes, $8,000 because I waited, thinking I had time. I am still kicking myself for this!

#4 Grades

This may not be what you want to hear, but what we want to hear is not always what needs to be said. The most assured way to gain scholarships and grants is also the most obvious. One must show initiative and value in one’s education. You may be asking yourself, “How is this sorcery done?” Three words: GET GOOD GRADES! You may be the smartest of all your friends or even in the entire class. The sad truth is that those who view your scholarship applications do not give two 💩s aside from what they see on paper.

Having good grades on your transcript speaks volumes about your academic character. Think of it as an academic credit score. No lender wants to lend to a student with bad credit. The good news is that you do not need excellent grades in the hardest courses to stand out. Sure, it can help under certain circumstances. Nevertheless, the most important thing is to show consistency through your efforts. Similar to having credit/payment history.

#5 Demographics

This factor is vitally relevant and acts as a significant power multiplier in combination to having good grades. In fact, including your demographics in the appropriate manner while combining good grades to your applications, gives you an incomparable advantage over other applicants. It is nearly bulletproof. That is why so many of these types of students end up getting full-ride scholarships.

However, armor fits differently for those who wear it. We all come from different backgrounds. The key here is to play to the tune of your audience. Use empathy and sympathy to reach the hearts of the readers by selling yourself and your story. I will teach you how to do exactly this.

1. Take advantage of your ‘minority’ situation. Is this direct enough? Many more doors of opportunity are available to those with less. Whether you’re a woman, a person of color, a first-generation college student, come from a single-parent home, or come from an environment filled with poverty. Do not be afraid to share your story and hardships. Use your situation as leverage to create sympathy. My most rewarding scholarships came from me being my most honest and vulnerable self. I grew up lower middle-class and always mentioned that I was a first-generation Hispanic being raised by a single mother. I always mentioned my most challenging hardships as well. Most people are afraid to share the exact thing that can give them the edge and make them stand out. Take the chance and throw your heart into the application. Your honesty is what makes your application feel genuine and separate from others. The worst they can say is no. Regardless, they damn sure will admire your courage and you will be a candidate they will remember. Being the one to stick out is key here.

2. Rise above; do NOT fall victim to your circumstances. This is where most people fail to sympathize. I repeat… Nobody wants to hear a sob story of how life is unfair and how bad you have it. Rather, tell how you have risen above to make the best of the situation, no matter what it was. Donors like candidates who show resiliency and persistence. These characteristics reflect the applicant’s discipline to put the reward to good use when these times arise.

3. Think bigger picture. Do not come off as desperate. Write your application as if you already have the money. How are you going to use it? How will it help you with your education? This is, of course, for everything school-related. Donors want you to be as transparent as possible. Avoid being vague. For example, if you need money to pay off debt or loans, then just simply say it. Don’t overcomplicate things out of fear.

4. Thank the donor! This is a small detail, but it is essential. Do not forget to thank the donor for taking the time to view your application. After all, they are giving you their money! Small gestures of gratitude go a long way.

#6 Network and Create New Connections

Make no mistake, the people you know and build relationships with can open doors that would not have otherwise existed. Everyone knows a guy who knows a guy. There are several ways you can create a network. I created my networks through a combination of academic, personal, and professional sources.

For example, I have a friend who worked for a local credit union at the time. He made me aware that the credit union had a few different scholarships for their members. I became a new member. A few months later, I applied for their study abroad scholarship. It ended up being a $5,500 win!

Another, more indirect way networking can work out in the long run is through the credibility of who you know. This useful tactic will serve you well throughout your entire professional life. A $3000 study grant that I received for my senior thesis project was obtained primarily through having a credible mentor in my corner. Having my mentor (also a Ph.D) before I applied for the grant was helpful because it showed that I had a plan as well as help with how to responsibly use the research grant. My end goal being to have a successful project.

You can network through clubs, sports, etc. Introducing yourself to professors, deans, and other staff is also a great way. Becoming friends with someone of power in their trade is never a bad thing. It will often do most of the work for you.

How to Create a Powerful Network

1. Get a qualified mentor! Not only do they know several connections, but they are an oasis of knowledge and reliable feedback. A good mentor will make you consider ideas from various perspectives. They will encourage you to push yourself out of your comfort zone. They will also hold you accountable for failing to deliver what you promised.
2. Name-dropping. There is a reason this is one of the most used sales tactics. Once you have a credible person on your side, use that to your advantage. By referring to others who are credible in their field, you are showing that you know what you are talking about or at least have the resources to become competent. The fantastic thing about this is that these names build on top of one another, growing exponentially. Soon, you will have a new names list. It is now up to you to build on these relationships, which will be your new network.
3. Get out of your comfort zone! The best things in life happen when we push ourselves to new limits. Mastermind with like-minded individuals. Find something you are interested in and take action. This can be through volunteering, attending seminars, courses, etc. Get out and introduce yourself to new people. You will be happily surprised by whom you meet.

So What?

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As you can see, most of these strategies are not as black and white as good grades vs. bad grades. What I want to express most are the subtle hints that are an indirect reflection of character. Donors wish to see these beneficial qualities in candidates. Think from a donor’s perspective. Which candidates would you trust with your money?

Nothing is 100% guaranteed to secure you funds. This is an explanation of how to best increase your odds of building good rapport and making a meaningful connection through your application. Many of these concepts are also applied to various things outside of school.

Everything I have mentioned has been an overwhelmingly successful strategy for me. So much so, I was forced to turn down several thousands of dollars in scholarships because their sum was higher than the school’s cost of attendance.

How Do You Make a Profit from Scholarships/Grants

This is where all of your hard work literally pays off. Nevertheless, there are some gray areas you need to be aware of. Yes, technically, you can earn as much income via scholarships and grants as you can create! One issue I ran into was when this number exceeded my cost of tuition for the semester. When this happens, the school will force you to give up any funds over the total cost of attendance (COA). Basically, this means is that the general average cost for tuition, books, and cost of living for that location have been met or exceeded. Therefore, the school cannot justify granting you more scholarships because then they can be nearly certain you are making a profit.

Do not be fooled. Just because a student exceeds the cost of attendance amount does not mean no profit is involved. The COA is a very liberal budget. 99% of students never exceed this because if they did, then schools would simply raise the amount to adjust.

Just for numbers’ sake, imagine your cost of attendance for your semester is $30,000. If you’re a student living rent-free with your parents and have a $10,000 tuition and $5,000 worth of expenses every 6 months, you could potently earn an extra $15,000 for that semester to go to school! That is solely for one semester. Can you begin to see the beauty?

Taxes

What is better than getting paid to get a free education? How about not having to pay taxes on what you are rewarded? Yes, as if spoken directly by an angel, but it is a fact! Here is a link directly to the IRS website for further clarification.

https://www.irs.gov/publications/p970#en_US_2024_publink1000293200

This is where things become gray. But, if you play your cards right, things can become green instead. I want to be perfectly clear. I am not a tax professional nor a financial advisor. Everyone should always file their taxes honestly and on time. It is illegal to cheat on your taxes, no matter your circumstances. I highly recommend working with a tax professional.

Objectively speaking, the IRS does not focus much attention on students since the normal consensus is that scholarships/grants are tax-exempt. Adding to the argument, it is extremely difficult to separate all educational expenses from non-educational expenses. Especially when scholarships and grants are your main source of income to pay all of your bills.

As long as you are not living extravagantly with unrealistic expenses/purchases, all expenses can be directly tied back to school. Even if you’re saving $5000 in a high-interest savings account, you are just saving for any unforeseen expenses that can affect the quality of your education. Heavens knows, all you need is to break your foot and have a $70,000 medical bill! Not speaking from experience or anything 🤥. Unforeseen circumstances happen all the time. Regardless, you are a student, and any expense directly correlates to the quality of your education. Nobody, not even the IRS, can prove otherwise. Be honest. Be responsible, and you will be okay.