How to Create a Scholarship Fund

Why Create a Scholarship Fund?

Help students with strong financial need.

• Remember a family member, friend, or inspiring figure.
• Foster diversity, inclusion, and disciplines that speak to your philosophy or purpose.
• Build a lasting legacy that goes on for eternity.
• Generate goodwill for a community and for your organization or business.

It is a wonderful way to give back. I once conducted scholarship fundraising in memory of a beloved teacher with whom I studied. A decade later, many students still come forward to share how this scholarship has reshaped their futures.

Step-by-Step Guide to Starting a Scholarship Fund

1. Define Your Purpose and GoalsWhat type of students or communities do you want to support: first-generation students, minorities, STEM majors, or local residents?
   Are you honoring someone in particular or establishing a brand for the company?
2. Select the Type of Scholarship FundMemorial Scholarship: Entering the legacy of one individual into the foregoing.
   Academic or Field-Based: Support for students in designated fields such as medicine, law, or arts.
   Need-Based or Merit-Based: The scale of either financial need, merit, or both.

    

3. Formulate the Funding Amount and StructureDecide on an initial endowment contribution or annual contribution (see budgeting table).
   Will it be a one-time award or awarded annually?
   Pooling funds with other donors or foundations creates sustainability.
4. Set Up a Legal and Financial FrameworkSelect the kind of organization: work through a community foundation, grant-making charitable organization, or establish a nonprofit.
   Be sure to consult a lawyer or tax adviser for compliance (IRS regulations, 501(c)(3) status).
   Draft guidelines and establish a separate bank account or trust if necessary.

    

5. Developing Selection Criteria and Application ProcessState eligibility, requirements, and evaluation metrics (GPA, essays, financial need, extracurriculars, etc.).
   Make the application fairly simple for the students to use (see examples).
   Be transparent and avoid any discrimination in the process from beginning to end.
6. Establish the Awarding CommitteeSelect a group of unbiased, diverse members to evaluate candidates fairly.
   Train them on the judging criteria and associated policies.
7. Promote the ScholarshipVisit local schools and universities and post at reputable sites (see Marketing Strategies).
   Utilize social media and alumni groups; personal stories give unique outreach impact.
8. Review Applications and Select RecipientsReview fairly and document according to your criteria.
   Notify recipients and celebrate their stories to inspire others (with their consent).
9. Disburse the Funds and Monitor the ImpactFunds are sent to institutions unless disbursal modalities permit otherwise.
   Track expenditure and require some follow-up (thank you letters, updates, GPA reports).
10. Assess and Adjust annuallyAssessing the fund outcome, the success of its beneficiaries, and adapting for improvements in the subsequent scholarship cohorts.

    “When you think about the ripple effect that is created through a single scholarship, it is great. I have seen students come back to become donors to pay it forward.”

Legal & Tax Considerations

Legal Framework

• Scholarships are not fully controlled by any central authority, but they need to comply with IRS and state policies [reference].
• Discrimination principles must be honored, and potential conflicts of interest should be avoided.
• When establishing a scholarship program under a private foundation, the procedures must be submitted to the IRS for approval.

Advantageous Tax Considerations

• Donations to a 501(c)(3) may be tax-deductible.
• Using a recognized platform-such as a community foundation or university-also avoids attendant tax implications.
• Seek advice from financial professionals regarding the tax implications for you personally (IRS Topic 421).

Note: Legal and tax requirements, along with the characteristics of each fund, are different from area to area. Always consult and work with competent legal or accounting experts before proceeding with something like this.

Setting Eligibility and Selection Criteria

Eligibility and selection criteria ensure fairness and effectiveness that are well stipulated. Criteria of selection may encompass:

• GPA or Academic Performance
• Extracurricular Activities
• Financial Need and Background
• Field of Study (e.g. STEM, Arts, Business)
• Personal Statement/Essays
• Community Service Work
• Diversity/First Generation Status
• Geographic Location/Resididency
• Intended Path of Career
• Letters of Reference
• Full-time or Part-time Enrollment
• Any Additional Unique Requirements (e.g. overcoming obstacles).

Fund Administration and Best Practices

Managing the Fund

• Keep clear records of all applicants, funds, and awards decisions automatically.
• Automating records as much as possible will make them less accessible and more effective (scholarship management platforms are available).
• Grant them close communication concerning winner and donor updates as well as confirmation of receipt of reports.
• Receive applications and make awards within specific periods. Private, confidential applicant information should be protected in accordance with privacy laws.

Publicizing & Sustaining Your Fund

Getting the Word Out

• You notice that you can tell history to showcase recipients and donor motivations.
• Press release; alumni network; local media; use as scholarship search engines (e.g., scholarships.com).
• Change the way you tell people how donations and awards change lives.
• Schools, colleges, and community groups may also be appreciated.
• A single branding is to be used for common updating and linking application procedures to a particular web page.

Ensuring Sustainability

• Consideration ought to be paid to the setting up of an endowed fund for perpetual awards.
• Encourage donations that recur: create an annual giving campaign.Transparency should be provided: the annual report should expound upon the progress of the fund and its recipients (see more).

Typical Costs & Budgeting Table

A scholarship fund’s costs are flexible and largely depend on scope, duration, and administrative choices.

Advice: Most organizations would normally start a single-year scholarship even with little as $1,000, or partner with a foundation to build endowment slowly over time. Be sure to always get the specific figure at the host institution or foundation of your choice.

Endowed vs. Non-Endowed Scholarships

Infographic comparing endowed and non-endowed scholarships (The Scholarship System)

Feature	Endowed	Non-Endowed
Funding Source	Investment principal (interest only used)	Direct contributions (all funds disbursed)
Sustainability	Perpetual awards, year after year	One-time or periodic, as funds permit
Typical Minimum	$10,000–$50,000+	$500+
Best For	Long-term legacy	Immediate impact

Frequently Asked Questions (FAQs)

Warnings & Common Pitfalls

My Perspective:
Personally, I recommend always providing an annual impact report—not only for legal compliance, but for the pride and assurance of your donors, committee, and awardees.

Resources & Further Reading

• 
  What You Need to Know About Managing a Scholarship Fund
  
• 
  How to Set Up a Scholarship Fund: Costs and Planning
  
• 
  Bold.org’s Guide to Scholarship Funds
  
• 
  The Scholarship System: A Guide for Organizations