What is an Endowed Scholarship?

By Lisa Freedland

Lisa Freedland is a Scholarships360 writer with personal experience in psychological research and content writing. She has written content for an online fact-checking organization and has conducted research at the University of Southern California as well as the University of California, Irvine. Lisa graduated from the University of Southern California in Fall 2021 with a degree in Psychology. Full Bio

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Updated: September 19th, 2023

With college costs always on the rise, many students could benefit from financial help to make their way through university. Creating an endowed scholarship at a university is a great way to help students there for many years to come. Keep on reading to learn about what an endowed scholarship is, how they work, and the benefits of creating one.

What’s an endowed scholarship?

If you’re passionate about helping students get through college, an endowed scholarship may be a great option. Creating an endowed scholarship helps a greater number of students than a typical scholarship would. 

To create an endowed scholarship, you must first donate a large amount of money to an organization. Your money is invested, and the interest made off the investment is used to fund scholarships rather than the initial donation itself. This way, the scholarship will be funded for many years without the donors having to contribute more money each year. The more money put into an endowment fund, the more it will earn once invested. Thoughtful investment allows the scholarships to last even longer and help more students.

Regular versus endowed scholarships

You may be wondering what makes an endowed scholarship any different from a regular scholarship.  The main difference between regular and endowed scholarships lies in the way they are funded.

Both regular and endowed scholarships require donors to set aside a certain amount of money to fund them. However, the money contributed to a regular scholarship will all be used that same year, while that contributed to an endowed scholarship will be invested with the hopes that the interest made will be used to fund scholarships for multiple years (ideally, as long as possible). 

So, if you wanted a regular scholarship to recur annually, you would need to keep paying the organization every year. This is not the case for endowed scholarships – in which you only pay a large sum for the first year.

How do endowed scholarships work?

After you create an endowment fund, you no longer manage the funds. That task lies in the hands of the university or organization you’re working with. Despite this, you still get to decide how the money will be used and distributed.

When you make the initial donation, you will likely be asked to write and submit a letter of intent describing how you would like your donation to be used. As you are a contributor to an endowment fund, the university or organization will then promise to leave your principal untouched, only using the interest made off the investment to fund scholarships.

Then, as with regular scholarships, you will be able to choose what to name your scholarship, eligibility criteria, and the amount awarded each year. For companies that create endowment funds, it is common to base eligibility requirements on the company’s mission statement. but not required (you can choose whichever eligibility criteria you want). All this information will usually be detailed in a gift agreement, which you will then be instructed to sign.

Many universities, but not all, set a minimum contribution in order to create an endowment fund. If you do not quite yet have enough money to meet the minimum for your desired university or organization, you can pay the endowment over time. Alternatively, you can even set up an endowment to be made after your passing, typically through one’s trust or will.

Benefits of creating an endowed scholarship

Besides the more obvious benefit of starting an endowed scholarship like helping a large number of students fund their college journeys, donating individuals and organizations benefit in other ways as well.

First, you or your company will likely receive recognition from the university, in the form of receiving praise as well as invitations to special events specifically for donors. This honor, as well as being associated with the school and scholarship itself, helps build your brand and improve its reputation.

In terms of more fiscal benefits, there are tax benefits to creating an endowment fund. Specifically, you will be authorized to take a charitable deduction of up to 50% of your adjusted gross income.

Most importantly, more than just helping current students fund their college educations, you will be helping future generations.

Key Takeaways

• Donors can start an endowed scholarship by making a large initial donation to an organization or university
• The university then manages these funds and awards the interest that they earn to scholarship recipients
• These scholarships typically last for many years and do not require repeated donations from the founder
• The founder of the scholarship continues to have agency in the qualifications and intention behind the scholarship

Frequently asked questions about endowed scholarships

Keep reading about scholarships:

• Common requirements for college scholarships
• How to write a winning scholarship essay
• Overview of common scholarship essay prompts
• How to avoid scholarship scams
• Our review of the top scholarship sites

Learn all you can about scholarships, which are essentially “free money” that never has to be paid back. Apply for all the  scholarships you qualify for and take fewer loans for a more secure financial future!