Addressing the nuances around scholarship legality can be daunting to anyone, but especially when we are facing conversations with members of our leadership teams, fellow development officers, or campus/organization partners. Sometimes it feels easier to bury our head in the sand or sail past that conversation in order to avoid the pitfalls and inevitable follow-up questions, what-if scenarios, and potentially awkward donor conversations.
However, there is going to come a day where every development professional is faced with questions on this topic and it is best to be as prepared and educated as possible. No, you don't have to be an accountant, and you don't have to be a lawyer, but you do have to have working knowledge of best practice, basic legal precedent, and workable solutions.
If you are needing to shepherd change within your organization in the scholarship space - whether it be gift agreement policy change, implementing tiered fund restrictions, addressing funds with protected class violations, needing resources for a fund audit – you have to begin from a place of knowledge. If you are going to have to ultimately tell someone “No”– a donor, a development officer, a superior – we need to know why we are saying it and what solutions we can propose before we even stop to take another breath! The great “no, but” scenario!
There are three primary areas of knowledge in which you should be well versed:
1. Your Fund Metrics/Environment: You need to have a general understanding of the gift acceptance, gift agreement, and fund performance of your specific environment. It’s time to dive in and take stock – do you have:
Unspent/accumulated funds
Funds with protected class violations
Overly restricted funds
Imbalance between fund size and administration requirements
Donor involvement in selection processes
Where are you biggest hot spots? Where are the areas that need dedicated time and resources? What are your greatest fund and/or donor liabilities? Understanding the general scope of any issues that may arise will help you advocate and make the case for change with your leadership. They need to see numbers, metrics, and dollar amounts. Think analytical, not anecdotal!
2. Solutions: Always go in with a solution at the ready! If we are going to suggest we can no longer do something, especially if it represents a major culture shift (such as allowing donors to restrict their gift to any degree), pair it with context, FAQ’s, training, and coaching. Offer case studies and samples, language to use with donors, and other resources to make all parties feel more informed and confident. Some examples might include:
Coaching for the utilization of preference statements instead of requirement statements in fund purposes (“preference for female engineering student” in lieu of “must be female”)
Providing instruction for using your institution’s student recruitment goals in order to propose gifts directly in line with priority prospective student populations in lieu of individually designed scholarship funds (this might include DEI initiatives, need based vs. merit based, recruitment vs. retention needs, etc.)
If dealing with a donor’s desire to be involved in the selection processes, be sure to arm all parties involved with standard answers and information regarding organizational policy, the established scholarship selection processes, and our desire to further engage the donor down the line via impact reporting and perhaps beneficiary interactions in lieu of direct involvement. And only if absolutely necessary, you can mention that direct involvement puts the tax deductibility of their gift at risk—a scenario no one wants!
Preparing development officers to positively position limitations on fund purposes. For example, using language such as “in order to meet your philanthropic goals and the college’s recruitment needs, we would like to propose structuring your fund in the following manner; we can address your personal story and connection with the college in the biography statement associated with your fund that will be shared with your beneficiaries”)
3. Legal Precedents: The number one question we get is where does the law say X or Y. There are some straightforward references we can point you to. There is also a lot of work done at the granular level in terms of interpretation and application and there needs to be a solid working relationship with your legal and finance teams in order to work through the nuances of your specific requisites. When a basic legal precedent is required though, here are some go-to resources:
Title VI of the Civil Rights Act of 1964 States that “no person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving federal financial assistance.
Student Beneficiary Activity When students are required to complete post-award activities such as attend specified events, complete additional documentation, provide personal information and other related organizational requests, the organization is placing undue burden on the recipient. The organization does not know if the student has the means or ability to complete said requirements. It is best practice to encourage but not require students to participate in the post awarding gratitude and reporting processes.
Title IX of the Education Amendments of 1972 Prohibits discrimination based on gender in any education program or activity that receives federal financial assistance, and its regulations prohibit scholarships that are restricted on the basis of sex, with a few limited exceptions. Athletic scholarships, within certain parameters, are one of the exceptions under Title IX.
The Department of Education has further stated: Pursuant to the Civil Rights Restoration Act of 1987, all the operations of a college are covered by Title VI if the college receives any Federal financial assistance. 42 U.S.C. 2000d-4a(2)(A). Since a college's award of privately donated financial aid is within the operations of the college, the college must comply with the requirements of Title VI in awarding those funds.
First Amendment’s Establishment Clause of the U.S. Constitution Prohibits the government from promoting or opposing religion.
Fourteenth Amendment of the U.S. Constitution Guarantees that no state shall “deny to any person within its jurisdiction the equal protection of the laws” (Equal Protection Clause).
BONUS! The most common protected class issues to keep an eye out for are: race, ethnicity, national origin, gender and gender identity, sexual orientation, religion, age, disability, veteran status, genetic information, and marital and parental status.
Involvement of your organization’s personnel in the administration of scholarships or funds that contradict the above legal statements, other than advertising the availability of the scholarships, can subject your organization to claims of violation of civil rights or the U.S. or state constitution. When encountering these situations, it is best to ascertain the donor’s true objectives for the restriction. Sometimes, that intent is quite different than what the donor’s original language suggests.
This is a tough subject! The DRG team understands that, and we’re here to help if you and your organization would like to explore your needs further. Whether it be a gift agreement policy assessment, fund audit, or deep dive into policies and procedures, we can help you maneuver any necessary change for the benefit of your donors and organization.
Stay tuned for Part 2 of this blog dedicated to beneficiary interactions—new trends, expectations, and how to tackle it all sustainably!
