Enter to Win a Scholarship: Paying for College Through Games of Chance
For many young adults, college classes will be starting soon. For many anxious parents, college costs will be accumulating soon. Thank goodness you can try to bankroll tuition by entering the many available sweepstakes awarding "scholarship" money. For a student, college scholarship sweepstakes offer a simple alternative to actually hitting the books. For sponsors, college scholarships offer a popular form of promotion to a captive audience and engender goodwill with the community.
While not as difficult as quantum physics, running an effective scholarship sweepstakes does require some pencil sharpening. Here are a few tips:
- Use of the word "Scholarship": For tax purposes, a qualified "scholarship" must meet certain criteria, including a qualified student, a qualified educational institution, and qualified expenses. http://1.usa.gov/28NkULV While not meeting these requirements may not strictly limit a sponsor from using the word "scholarship" in the sweepstakes, it could give the impression that the award does meet the federal tax definition.
- Eligible entrants: Typically, a sponsor will want to limit entrants to high school seniors who will be entering college as first-year students (shout out to the p.c. colleges!) or current college students. You could also consider home-schooled students and students obtaining a GED. 18 or older may be preferred, since in most states this is the age of majority and the sponsor can deal directly with the student. And you may want to limit to full-time students.
- Eligible colleges: The student should enroll or be enrolled in an appropriate institution of high learning to avoid having to pay the prize to (sorry) Trump University. The college should preferably be accredited, non-profit, four-year and located in the 50 states. The U.S. Department of Education lists accredited colleges and can be referenced in the Official Rules.
- Eligible uses: The prize should be limited to certain uses, such as tuition, housing, books, etc. and not late night pizza slices at Koronet (although they do have face-sized pizza slices http://bit.ly/28MTKnC)
- Validation: In addition to making it clear in the Official Rules and any advertising, the sponsor should have the student complete a clear and comprehensive affidavit of eligibility, including: confirmation of his/her status, the name, address and contact at the college, the permitted uses of the prize, and to whom and when the prize will be awarded. You can also consider obtaining consent to perform a limited background check on the winner to confirm his/her educational status and consent to contact the high school and college to confirm eligibility.
- Awarding the Prize: It may be preferable to pay the prize money directly to the college so that you can ensure the money is spent as intended (see Koronet reference above). Further, the Official Rules (and Affidavit of Eligibility) should confirm that the award will not be paid until the winner is actually enrolled in the college, and the sponsor should reserve the right to disqualify the winner in the event he/she is not enrolled in college within a time certain of winner selection or the check is not cashed within a time certain. The rules should also state the form of the award, e.g., a check paid directly to the college. If a sponsor wants to give the prize money to the student, the rules should recommend how the money is to be spent, make clear that the prize is subject to all applicable taxes, and cross its fingers.
- Publicity: This type of prize is ideal for publicity purposes. There's nothing better than a pic of little Johnny or Janie holding up a jumbo-sized scholarship check from the sponsor. Remember, if the winner is from Tennessee, you can't require him/her to give a publicity release (but you can ask). For all others, make this requirement clear in the Official Rules and have the winner sign a separate publicity release confirming that the sponsor can use the winner's name, likeness, etc. for publicity purposes without further compensation.
As for parting words, I have a son entering college this fall and a daughter entering her senior year in high school. So, of course, feel free to contact me if you need any help running a scholarship sweepstakes.