The Scholarship Award Process

The scholarship award process is where Section 25F compliance is most visible — and where errors have the most direct human consequences. An award process that violates the no-earmarking rule or that does not maintain proper arm's-length documentation can result in loss of the SGO's state-approved status, which terminates the donors' ability to claim tax credits retroactively.

The award committee

The committee that makes scholarship decisions is the institutional mechanism for achieving arm's-length compliance. Its composition matters.

Award committee members should not be major donors to the SGO. A committee member who is also a significant contributor has an interest in how their contributions are applied — even if they sincerely intend to make independent decisions, the appearance of a conflict creates compliance risk.

Award committee members should not be closely affiliated with specific schools that receive scholarship recipients. The multi-school distribution requirement exists precisely because of concerns about SGOs that benefit single institutions. Committee members with strong affiliations to specific schools should be recused from decisions that affect their school's students.

Committee decisions must be documented. The documentation does not need to be elaborate, but it needs to exist: a meeting record that confirms which applications were reviewed, what criteria were applied, and what the decisions were. The absence of documentation is not a compliance violation in itself, but it makes demonstrating compliance impossible if the documentation is ever needed.

The application and pool development challenge

The award process cannot generate multi-school distribution if the applicant pool is concentrated at a single school. If your marketing and outreach for scholarship applications reaches only the families connected to one school's community, the award process will inevitably concentrate awards at that school — not because the committee violated the no-earmarking rule, but because the pool was not diverse enough.

Pool development is as much a compliance requirement as the award process itself. Outreach must be broad enough — geographically and institutionally — to generate a genuinely diverse applicant pool from which the committee can make legitimately independent decisions.

Income verification

Every scholarship award must be supported by verified income documentation before funds are disbursed. The income verification step confirms that the recipient family's household income falls at or below 300% of the applicable area median gross income.

The practical requirements: - The application must collect sufficient documentation to verify income (tax returns, W-2s, or equivalent documentation for non-wage income) - The verification must occur before the award is finalized, not after - The verification methodology (which data source is used for area median income) must be documented and consistently applied - The results of income verification for each applicant must be preserved as part of the compliance record

The returning student and sibling priority

The statute creates a priority system for award decisions. Students who received a scholarship in a prior year are prioritized. Siblings of current or prior scholarship recipients are prioritized. This priority must be systematically applied — it cannot be ad hoc.

The practical implication: the award management system must track returning recipients and their siblings across award cycles. This is a data management requirement that must be built into the platform from the beginning, not added retroactively.

What to preserve

At the end of each award cycle, the SGO's compliance record should include: - All applications received, with the schools attended by applicants - Income verification results for each applicant, with documentation - Committee decision records confirming the criteria applied - Award distribution across schools (confirming multi-school compliance) - Disbursement records for each awarded scholarship

This documentation package is the foundation for state annual reporting and the defense against any regulatory inquiry.