Donor Involvement in Scholarship Selection: Q&A on Legal & Ethical Practices

Written By Erika Orsulak
Judge signing papers with gavel in front

Most scholarship providers face common hurdles. While some are administrative bottlenecks, other are much more serious–and potentially hazardous to an organization’s future. 

One of the biggest-deal issues? Donor involvement in scholarship selection. 

While there are some differences in how organizations of various types (public charities vs. private foundations) are regulated, there are consistent, sound practices all organizations should (and shouldn’t) use in donor involvement in selection. 

We'll address some of the frequently asked questions on this topic, providing essential information to ensure your program adheres to legal and ethical standards.

Disclaimer: While none of our team members are attorneys, we’ve gotten great advice from the Council on Foundations, National Scholarship Providers Association (NSPA)-sourced attorneys, and other legal counsel on this issue. 

Q: What’s best legal and ethical practice in donor involvement in scholarships?

Your organization–not donors–must control the membership of selection committees. Organizations offering scholarships have the responsibility to control committee makeup, in part to prevent preferential treatment to potential recipients. Donors can advise on members, but your organization has the responsibility and right to take or leave their suggestions, and you have the final say on committee composition. 

  • So that you’re ensuring adherence to your organizational rights and responsibilities, it’s recommended that each year, your Board reviews, approves, and documents the selection committee makeup. 

Donors and their designees can be on selection committees, but they can’t make up either a majority number or a majority of the “voice”. 

  • The majority of the committee must be those who aren’t appointed by the donors or invited to represent them. 

  • Anyone appointed by the donor is still considered “the donor” because of the potential influence they may have on that person, and thus the entire committee. 

Your organization’s Board must approve in advance the procedures for selecting recipients. These procedures are required to be objective and non-discriminatory.

  • This is a key reason to have an established–and consistently used–evaluation rubric for every one of your scholarships. This allows each committee member’s score or vote to be weighted equally, without undue donor influence. 

  • Committee members reading applications, talking about applicants, and selecting recipients without an objective process violates that “objective and non-discriminatory” regulation. 

  • It also potentially violates the rules around donor participation, since you’re not able to control or document donor influence over committees. 

  • We’ve seen that without an objective evaluation rubric, committee members often defer to donors, which is a violation of laws governing scholarships. 

  • We’ve also seen committees follow a legally sound, objective process, but then present top candidates to donors for final selection. Even in cases where those donors are in the minority on selection committees, this still weighs their vote unequally, thus again violating law governing scholarships by allowing specific individuals of donors’ choosing to benefit from the scholarship they advise. 

Q: What happens if donor participation becomes too great?

If donor participation becomes too great, whether it’s physical (they and their appointees make up the majority of a committee) or influence (they’re offered final selection of recipients), the scholarship fund may be considered a Donor Advised Fund (DAF). 

  • DAFs are regulated separately from scholarships. 

  • In general, DAFs are prohibited from making grants to individuals. 

Q: How can I learn more about law and policy governing scholarships?

Here are some of our most trusted resources:

We’ve seen a concerning number of donor-involvement violations in our time in the industry and working with clients. Rectifying these issues is crucial for your organization, especially given the current climate of increased scrutiny. Making these important fixes will enable you to continue the vital work your program does to enhance students' lives.

Concerned about compliance? Want a watertight, worry-free program? Schedule a free consultation with us to ensure your scholarship program runs as it should, including adhering to all legal and ethical standards.

Erika Orsulak
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