How to Start a Scholarship Foundation

A scholarship foundation is a wonderful form of philanthropy that focuses on young people and education. The objective of a scholarship fund is to give money for educational expenses--books, tuition and more--to people who meet specific criteria. Criteria for receiving individual scholarships can vary widely such as specific geographic areas, areas of study and school of choice. To set up a private scholarship foundation, follow these steps below.

Decide the purpose of the scholarship foundation. What you will name it? Who do you want to give money to? How much money? Consider naming the scholarship in honor of a deceased or accomplished person of note.

Set your criteria for eligibility. These can vary widely, but since it's your foundation, you get to pick. Some example of scholarship criteria are: people who want to study a specific area of interest like art, people who are between a certain age, among others.

Create a founding scholarship document, called a trust document. In this document, list the criteria for eligibility and selection, the duration of the financial awards and any conditions for scholarship renewal. Make your document flexible by putting ranges of criteria such as age, grade point averages and award amounts. In times when you can't find qualified applicants or tuition costs increase, your scholarship committee can award the scholarships more easily within the flexible criteria.

Set your starting amount. If you want to establish an endowed scholarship fund, one that has a permanent source of income, you should start with at least $25,000. A scholarship fund with a smaller amount than that, which is renewable yearly, eliminates new applicants for several years because the money would not be there. An example of an award from a $25,000 scholarship fund would only give out at $500 grant per year.

Decide who gets the scholarship, the student or the institution. Private scholarship foundations cannot easily give a scholarship directly to the student due to strict IRS regulations. If you give money directly to the student, you have to keep track of how the funds are spent by collecting receipts from the students. Students may even be liable for taxes. Keep it easy for yourself and everyone by giving the money to the institution for the student.

Set up an advisory committee. This committee is responsible for choosing recipients, setting policies and dealing with guidelines. The committee should be a group of varied volunteers committed to the scholarship's purpose.

Spread the word about your scholarship. Publicize your scholarship in the appropriate manner. For example, if it's a local scholarship, get the word out through newspapers, community groups and local high schools. If your scholarship is national, get listed in national scholarships publications and online scholarship resources.

Solicit donations. If desired, you can solicit donations for the scholarship fund through the community and individual donors. When someone donates, you must provide a document stating the name of your organization, amount of cash contribution, description of non-cash contribution, a statement that no goods or services were provided by your organization in exchange for the donation, a description and estimate of the value of goods/services if the organization provided in return for the contribution. The donor may be able to claim a deduction on her taxes, but the donor will need to maintain this receipt. Make sure you give it to her.

Comply with IRS rules. These rules are intended to ensure that scholarship programs are beneficial to a large group of beneficiaries in a nondiscriminatory process. Get a good accountant and always have him advise you as to the tax implications of anything before you do it.


  • When setting up your criteria for your scholarship, keep in mind the task of verification. It can be tedious and time-consuming to have to verify applicant's claim of ancestry if it's genealogical based scholarship.


  • Scholarship programs involve a lot of administrative work. These administrative costs can run from 5 to 20 percent of a scholarship program. If you intend to deduct these administrative costs from the scholarship fund, you should make donors aware of that from the beginning. It is the honest thing to do.


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