The whole college admissions process—choosing which colleges to apply to, completing the applications, waiting for responses, and making your final choice—is often overwhelming. Figuring out how to pay for college is even more overwhelming. We’re aware that there are scholarships available, but we don’t always know how to find them, how to evaluate them, how to apply for them, and even if they’re actually worth it. There’s a lot of complexity, and each individual’s situation is different, so it’s difficult to make a few simple rules for everyone to follow. So today I’d like to do some thinking about scholarships in general, and next week I’ll choose three or four individual scholarships to look at using the framework I explain today.

To understand scholarships, think like a donor.

Let’s start with the big money. Imagine I’m a wealthy person who has decided to spend a million dollars giving back to the community by funding college scholarships. With that kind of money, I can start my own scholarship fund. I’ll need to hire some lawyers to set up the non-profit organization. I’ll need to hire an accountant. I’ll need to hire at least one or two administrators who will process all the applications, put together a panel of judges, make sure the money actually makes it to the winner’s account at college, and coordinate with the lawyers and accountants and bankers. I’ll need a marketing company to help me advertise the scholarship to make sure that I get a good applicant pool every year. I’m going to easily spend five to 20 percent of my million just getting the fund set up and working, leaving me with less money for actual scholarships. Or…

I can call up a university, probably the one I graduated from, one that my children graduated from, or perhaps a local one in my community. I tell them I want to donate a million dollars for scholarships. Hooray! They’ll send someone from their development office (“development” means fundraising) to me, and they’ll treat me to a nice dinner. They’ll lay out several options for how to structure or limit the scholarships. They’ll offer to make more options if I don’t like those. They’ll ask me—politely and subtly—if maybe what I really want to do is donate two million? They’ll write an article about my big donation for their alumni magazine, and they’ll invite me to campus to be celebrated for my contribution. I’ll get lovely thank-you notes from the college president and development office. They can arrange for me to meet the recipients of my donation. What’s even better, virtually all the money will actually go to scholarships. They’ve already got the lawyers, accountants, administrators, and marketers, so I don’t need to bother with that. It’s easier, more fun, and more cost-efficient to donate directly to the school. There’s a drawback that the funds will only be used at that school, but that’s probably not a big deal to me. If they’re accepting good and worthy students, then I’m ok with that.

Which route to do you think I’m going to choose? Giving to the college. This is why almost all the big money for scholarships and financial aid is already at the colleges, and this is why you’re going to get most—or all—of your scholarship money from the college you attend, whether it’s in the form of need-based aid, merit aid, or both. That’s simply where the money is, because that’s where it makes sense for the donors to give. There’s also the power of interest and investment to help their big pile of money become an even bigger pile of money over time. There’s around half a trillion dollars of college endowment funds in the United States.

If it’s efficient for a million-dollar donor to simply donate to an institution, then it’s even more efficient for smaller donors. If I’ve only got a hundred thousand dollars to give away in scholarships, or a thousand dollars, or a hundred dollars, or twenty dollars, then I’m not doing this myself. I’m going to give to a larger institution that already has a scholarship fund set up. It may be directly to a college like the big donors, or it may go to my church, employer, union, social club, or a local charitable organization. The first place you look for scholarships outside of the college you’re attending is among the organizations you’re already involved with. See if any of your family’s employers have a scholarship fund. Check your church, temple, or mosque. Check any clubs, professional organizations or social organizations your family belongs to. Check any national organizations you belong to through school, like the National Honor Society. They probably have some kind of education fund, and you’re likely to qualify if you’re part of their group. These scholarships tend to be smaller, but they are also usually limited to members of the group, so there may be less competition. They’re also not usually limited to a particular college.

That covers individual donors and organizations. What about businesses? Do they have scholarship funds for people who don’t work for the business? Sure, though this is pretty limited. For one, they might get a lot of hurt feelings and opposition from their employees if they give more money to outsiders than they do to their own people. Also, very large businesses may give to education in ways other than individual scholarships. A pharmaceutical company, for example, may decide to sponsor a chemistry lab and endow a biochemistry professorship rather than give undergraduate scholarships. A big company may sponsor the school theater or student center to bolster their reputation as generous patrons.

But small companies do often sponsor small scholarships. They often, though not always, want something in return. Yesterday I scrolled through a wide assortment of scholarship listings, and a huge number of them are sponsored by a small company that requires students to write an essay or make a presentation about how important that particular industry is. Some want you to take a survey or send photos. Not to be too cynical, but many of these scholarships are just basic prize drawings to entice people to their business, only you get a tax write-off if the prize is a “scholarship.” I’ve known tons of students who begin their senior year thinking they’re going to apply for as many of these small scholarships as possible, and then decide that they’re just not worth the time and effort. There can be a lot of work and risk involved.

That’s a run-down of how the donors think. How should you think about scholarships? There a a few questions to ask yourself to guide you.

How much do I need? A lot! All of it! That’s the response you’re going to get from your parents, and they’re not wrong. But you want a more specific idea of how much you need, because the scope of the need determines your approach. If your EFC is small—from zero to a few thousand dollars—then you’re going to need the Big Money, and you know where to find that. Every hour scoping out colleges that meet all or most of determined need is better spent than every hour applying to $500 scholarships. If your need is smaller, or zero, and what you’re trying to do is fill in smaller gaps in your financial aid package or make extra spending money for a better meal plan, then the smaller prizes may be a better fit for you—you’re not going to get much of the sympathy vote for need-based aid, and that’s fine.

There’s also the very real but fairly rare problem of getting a lot of outside scholarships, and then having your college deduct that from your need-based aid. If they’ve determined you need $20,000 to attend and they can provide it, when you submit the check from your $10,000 scholarship you won, they can (legally and ethically) say you no longer need that $10,000 from them…and reduce your need-based aid by $10,000. You’ve done the work to get the extra ten thousand, but you end up not getting anything extra from it. Most universities have a line at which they don’t bother with this—$5,000 is a number I’ve heard a few times. Get less than $5,000 extra, and they don’t worry about it. Cross that line, though, and they’ll reconsider your need-based package. They don’t publicize the line, and it may be more of a grey area than a solid line, but this is something you should ask about when you receive a need-based aid offer.

What communities do I and my family belong to? Start close to you. What local, regional, or national organizations do you and your family belong to, and do they offer help? Money is often easier to get if you’re an insider, so begin with these. For example, I was pretty involved in my Methodist church when I was in high school. I chose to go to a Methodist-affiliated college. This was just luck; I didn’t choose them because they were Methodist. But I did get a really nice scholarship from my regional Methodist Council, and I also got a low-interest student loan through the Methodist church. The Baptists next door didn’t have access to these, but they probably had Baptist help available that I didn’t.

How big a fish am I and how small is my pond? You’ve got to be honest about yourself and your aspirations to find the right kind of merit aid. It helps to think of athletic scholarships. Only about two percent of high school athletes get athletic scholarships, and not all of those are full rides. The people who are going to get the big scholarships to the big schools are the ones who have already been identified as being the best in the country—or the world. It’s okay to be proud of being the third-best runner on your school’s cross-country team, but don’t expect that to pay for your college. However, if you’re not looking for a big scholarship to a big school, then there are probably Division III schools (who don’t have athletic scholarships) who would like to see you on their cross-country team and may be able to find a little extra academic merit aid for you.

Now translate that same idea to academics. If you’re valedictorian and president of the NHS, that’s fantastic! But every school has a valedictorian, so there are hundreds of thousands of you. It’s going to help you get into a great college, but that alone is probably not going to get you a full ride for academic excellence. There’s too much competition. If your ACT scores fit the mid-range of the prestigious college you’re applying to, they’re probably not going to offer you merit scholarships to entice you. But a less-known school where your ACT scores would be in their top 10% might be willing to shell out a lot more money to allure you. You have to decide how badly you want to go to the more well-known school, and if you can pay the extra price.

What am I willing and able to do? Are you willing to go to your fourth-choice school if they offer you thousands more dollars than your top-choice school? Are you willing to take out thousands of dollars in loans without knowing what job you’ll have after college? Are you willing to spend 100 hours applying to scholarships, knowing you may not win any of them? Are you able and willing to work part-time, or even full-time, to pay for the bill yourself? Can you save now for the extra things you’ll want to do in college, like studying abroad or joining a sorority? It’s best for everyone involved if you work on honest answers to these questions before you start applications or receiving financial aid offers. These are discussion to have with your family as soon as possible.

Thanks for reading! Please share this with everyone you know, or at least with someone you think will find it helpful. Next week, we’ll look at several different actual scholarships to analyze them and see how we might think about them. There are lots of ways to get regular updates from Apply with Sanity: like me on Facebook and Twitter, get the monthly newsletter, or connect on LinkedIn.