The article explores what the writer said is a rising trend in ultra-high net worth and HNW donors funding scholarships as a means of charitable giving, particularly as tuition costs rise. The editors are pleased to use these comments and hope they stimulate debate. Remember, these guest articles are designed to foster conversations, so please get involved. To respond, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Educational causes have topped donors’ giving priorities for decades, particularly among higher education institutions, but recent years have seen an uptick, with educational giving reaching $88.32 billion in 2024. 

While the past five years have seen slight dips in higher education tuition fees, inflation and day-to-day living expenses have soared. In fact, student housing has arguably become the fastest-growing cost of higher education. As institutions are pushed to raise costs, students are feeling the pressure to keep up with growing housing and food and other miscellaneous fees, such as textbooks, technology and transportation. To put these numbers into context, these additional non-tuition costs averaged approximately $18,970 alone for the 2024-2025 school year for students enrolled in public and private four-year institutions. 

For individuals who have considered supporting scholarships in recent years, now is the ideal time to put a plan into practice. Even for donors who have had decades-long scholarship strategies, rising costs and the changing nature of higher education expenses make it an opportune moment to revisit plans to ensure that they’re reflective of higher education students’ evolving needs. 

This article answers the most common questions from donors, and how advisors can help them craft impactful approaches aligned with their philanthropic goals.   

What constitutes a scholarship?
Supporting scholarships may appear to be a straightforward process; however, the multiple options and nuances can make it difficult to distinguish what is, and isn’t, considered a scholarship. 

For a scholarship to qualify as a tax-deductible donation, the selection process must be impartial, and recipients must be chosen from a “charitable class” as defined by the IRS, which includes students with a demonstrated financial need, or those with interests in specific fields, such as STEM or athletics. 

These need- and merit-based scholarships can take many forms. For example, a donor who had a difficult time breaking into business may wish to pay it forward through a merit-based scholarship supporting students pursuing a career in finance. Others with a passion for the arts or those who played college sports, may give towards those areas. 

Another consideration? Whether to set up current-use or endowed scholarships. Current-use, or one-time donations, are given directly to academic institutions and used immediately or over a prescribed number of years. Alternatively, endowed scholarships are permanent gifts that provide a predictable amount of ongoing support. For example, instead of giving a one-time $200,000 gift to be used over the course of a student’s four college years, through an endowed scholarship, the institution allocates a specific percentage of the $1,000,000 donation to go towards a scholarship student each year. 

Donors sometimes ask if they can support a family member or friend. Scholarships intended to benefit a specific student, even if they are unrelated to the donor, are not considered tax-deductible charitable donations under federal tax law. 

Can I select scholarship recipients?
Generally, donors cannot directly choose recipients. When an individual donates to an educational institution or works with a community foundation or nonprofit to fund scholarships, the organization manages the selection process to ensure fairness and compliance. 

It is important to inform clients that IRS rules limit individuals from having sole or majority discretion. The same applies when donors fund through community foundations or intermediaries, apart from private foundations which are subject to additional rules and penalties for failing to comply.

Donors may also ask if they can support new students each year. Depending on the size and structure of their gift, supporting multiple students through single-year awards is possible if they provide scholarships to support a school directly or through community foundations via a current-use scholarship. 

How can I give beyond tuition? 
As costs of living climb, giving towards room, board and other expenses is often equally crucial to students’ academic success, especially as financial aid packages frequently fall short of meeting these full costs. 

In fact, research finds that more than half of students report experiencing basic need insecurity, including food and housing insecurity or homelessness. Students may be forced to take out additional loans, work multiple jobs outside of classes which can negatively impact academic performance or, in some cases, lead them to withdraw their enrollment completely.  

Even in instances when students can cover tuition and basic expenses, they may not have the means to participate in the host of opportunities colleges provide, such as study abroad or campus organizations. The same applies for internships, which are vital to securing post-grad employment. For example, a student offered low pay, or even unpaid, internship in an expensive city may have to decline the opportunity due to living costs.

There are several programs to explore with donors interested in giving beyond tuition, many of which are designed to increase graduation rates for students navigating economic barriers. Additionally, academic institutions will often allow donors to establish scholarships for non-tuition purposes such as internship stipends, abroad programs or other experiences. 

Giving today to support students’ futures
Ultimately, thoughtful and flexible scholarships are critical to unlocking opportunities for students and empowering the next generation.

Whether a client is an experienced donor or just beginning to explore higher education philanthropy, every contribution – no matter how big or small – can make a transformative difference. As tuition costs and living expenses soar, now is an important time to revisit or set up higher education giving strategies to make immediate, lasting differences in deserving students’ lives.

About the author

Caroline Hodkinson is managing director and head of philanthropy and family governance advisory at Bessemer Trust. In this role, she leads the firm’s initiatives focused on supporting families, family enterprises, and family offices in empowering rising leaders, enhancing governance and decision-making, and advancing meaningful philanthropic impact.
 
Prior to joining Bessemer in 2011, Hodkinson worked in fundraising and development for the University of Pennsylvania, supporting donor cultivation and alumni relations efforts for the greater New York City region. Before that, she was a Teach For America corps member, teaching high school biology and earth science.
 
She serves on the advisory board for the University of Alabama’s School of Social Work and advises several nonprofits looking to sustainably scale nationally. She previously served as board chair for an organization that amplifies voices of vulnerable teens in New York City for the benefit of peers and youth-serving adults.
 
Caroline earned an MS in nonprofit management and philanthropy from New York University and a BS, summa cum laude, in social work from the University of Alabama.


Disclaimer

This material is for your general information. It does not take into account the particular investment objectives, financial situation, or needs of individual clients. This material is based upon information obtained from various sources that Bessemer Trust believes to be reliable, but Bessemer makes no representation or warranty with respect to the accuracy or completeness of such information. The views expressed herein do not constitute legal or tax advice; are current only as of the date indicated; and are subject to change without notice.