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Although winning a slew of scholarships in high school sounds like a great way to fund a college education, a combination of federal regulations and institutional policies often prevent students from seeing where their money goes.

If the total amount of scholarship money exceeds $300, that money must go toward reducing need-based financial aid awarded by the school, according to Mark Kantrowitz, director of advanced projects for the scholarship-searching Web site

At Penn, which will switch to no-loan financial-aid packages starting in fall 2009, these "outside scholarship" earnings first go toward a student's expected contribution, typically comprised of work-study hours, summer savings and, through this academic year, a student loan, said Bill Schilling, director of student financial services.

"Since we meet [a student's] full need, we have to make an adjustment when an outside scholarship comes in," Schilling said, adding that the grant portion of a student's aid package - which does not need to be repaid - is only affected once other portions of a student's contribution are eliminated.

Some problems arise, however, when students attend schools that can't afford to give as much grant money as Penn does, Sally Rubenstone, a senior advisor to college advice Web site, said.

In some instances, according to Rubenstone and Kantrowitz, outside scholarships may first be applied directly to a student's grant package in an effort to spread the financial-aid net to cover more students.

Rubenstone considers this "typical college outside-scholarship policy [to be] one of the worst secrets in college admission," adding that many parents and students are "blindsided" when they see how their scholarships subtract from their aid.

At Penn, the upcoming switch in the financial-aid policy will mean a change in the application of scholarship funds, Schilling said.

Because aid packages will no longer include loans, outside scholarships will only replace a student's summer contribution and work-study allocation before beginning to replace grant aid.

And although this policy might discourage students from taking the time to fill out scholarship applications, Kantrowitz said this was unlikely because less than 2 percent of colleges nationwide offer loan-free aid packages. This means that most students nationwide attend schools that will put scholarship money toward reducing their loans.

"You can't count on getting a full financial-aid package with no loans . until you have the admissions letter," he said.

And at Penn, students seem to vary in their knowledge and expectations of scholarship-money distribution.

"I kind of just assumed it would be handed over to the school" for tuition, College sophomore Charlotte Noren, who won two outside scholarships, said. "I know it's going to good use, and I'm just trusting the office."

However, one Wharton junior - who won over $50,000 in scholarships in high school and wishes to remain anonymous because of the personal nature of her finances - was less pleased with the pitch offered by Penn.

She applied early to the school because she thought scholarships would cover most of the bills her parents would have to pay. But when she received her bill, she was surprised to see her scholarship was subtracted from her aid, not her parents' contribution.

High schoolers with significant scholarship winnings should ask financial-aid officers very specific questions when applying, she said, because "they're not going to come right out and tell you [information] if it's not to their benefit."

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