How to Start Your Own College Scholarship

Naming rights and deductions vary, but donors are increasing.

In late October, the Wall Street Journal has an interesting article on starting your own scholarship funds and notes that donors are on the rise… education is the back bone of success in this country and it is a wonderful reminder of the importance of establishing scholarship funds.  Here’s the article:

By Anne Tergesen

When Margie Fegley retired from the James E. Fegley Violin Shop in April, she started a scholarship fund to honor her late husband, James.

Ms. Fegley, age 69, who sold the family business making and repairing string instruments, plans to give away $2,500 a year in perpetuity to a music student in the area with a grade-point average of 3.0 or higher. “We always talked about doing something to help local students pursue careers in music,” says the Reading, Pa., resident.

Reacting to the rising cost of college, growing numbers of individuals are starting their own scholarships, some with as little as $1,000. The Reading-based Berks County Community Foundation, which administers Ms. Fegley’s $50,000 grant, handles 90 such funds, up from 62 in 2008. Similarly, the number of scholarship funds at the San Diego Foundation and the Arizona Community Foundation has risen 23% and 60%, respectively, since 2008.

James Fegley violin shopJames Fegley in the mid-1980s in his Reading, Pa., violin shop. His wife recently set up a college scholarship in his memory for music students from the Reading area. The Reading Eagle

Of course, altruism is only part of the equation. Helping young adults attend college can yield tax breaks for the charitably inclined. If you are thinking about creating a scholarship, there are several points to keep in mind.

Donors who want help starting a scholarship can outsource some or all of the work to a college or one of a growing number of nonprofits with expertise in scholarship administration. What is right for you will depend on factors including the type of student you want to help, how much you want to give away, and how much say you want to have in picking the winners.

Those with $1 million or more to give away may want to consider establishing a private foundation. As long as the Internal Revenue Service approves the foundation’s gift-giving procedures, the donor can maintain control over who receives the grants, says Karen Leaffer, a Denver lawyer who specializes in nonprofit law. But in addition to being costly to set up and run, private foundations limit donors’ annual tax deductions to 30% of adjusted gross income for cash contributions and to 20% for gifts of property.

Those willing to work with an existing public charity can get naming rights for donations of as little as $1,000. They also pay lower fees and can deduct more—as much as 50% of adjusted gross income for donations of cash and up to 30% for other assets, says Ms. Leaffer. The hitch: The donor—and his or her relatives and business associates—can have only a minority vote in the selection of the scholarship recipient, says Ms. Leaffer.

Many donors choose to work with colleges and universities. For endowed scholarships, which are intended to last forever, Oberlin College in Oberlin, Ohio requires at least $50,000. At Texas A&M University,philanthropy, philanthropic gifts the minimum is $25,000. Oberlin, which waives fees, also extends naming rights to those who give $2,500 or more annually for at least three years, says Kassy Wyman, director of development operations.

While many colleges allow donors to specify broad preferences for who will receive their money (for example, math majors from Michigan), many bar them from participating in the selection process. “The awarding of scholarships is handled by our financial aid team, who utilize a complex program to match up students to funds in the most optimal way,” says Ms. Wyman.

If, like Ms. Fegley, your goal is to help students from a specific area, such as your hometown, consider giving the money through a community foundation. While Ms. Fegley will help choose the winner of the Jim and Margie Fegley Orchestral String Scholarship, she is legally required to be in the minority on the selection committee, says Kevin Murphy, president of the Berks County Community Foundation.

Some state agencies administer scholarship programs—the Oregon Student Access Commission and Vermont Student Assistance Corp., among them. These organizations primarily publicize their scholarships in the communities they serve, so some donors use groups with national reach. For example, Scholarship America, a nonprofit based in Minneapolis, administers grant programs for corporations and individuals.

Source:  Ms. Tergesen is a staff reporter for The Wall Street Journal in New York. She can be reached at

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