How to Establish a Scholarship Fund Through Your Ministry

By Raul Rivera

During this time of year, many high school and college students are preparing to graduate. This is one of the big milestones that one accomplishes and experiences in life. For high schoolers, many are preparing to go off to college, away from home and away from their parents for the first time. And for college students, many are preparing to enter into the “real world” as working professionals.

Without having to say any more, it is pretty obvious that this is a momentous occasion that calls for celebration, which is why many churches spend time honoring their graduates. Many churches and ministries establish scholarship funds as a way to honor graduates, but as a nonprofit, there are guidelines to consider when establishing a scholarship fund.

In this article I will give you 5 important steps to take that will allow your church or ministry to establish and operate a scholarship program that not only blesses the receipants, but also keeps your church or ministry in compliance.

But before we look at that, I want to spend some time giving you a few pointers to help make your “Graduation Sunday” a memorable one for your church’s graduates.

5 things to do prior to Graduation Sunday

As a young adult, graduation, whether it be high school or college, is like a right of passage into adulthood. Graduation is the culmination of years of hard work for these students. Because of this, you will want to make sure that “Graduation Sunday” is special and memorable for everyone involved. Below are 5 things to do prior to the service.

1. Determine the date and location of the graduation blessing ceremony. Many churches have the blessing ceremony as part of a Sunday morning worship service.

2. Determine the intricacy level of the ceremony or blessing. Will it be a prayer at the beginning of the service, or something more elaborate? This will determine the level of effort needed on your end. If you would like to plan for a more simple blessing at the service onset, then you will need to address the following questions:

• Will we acknowledge the graduates individually and have graduates sign-up prior to the blessing?
• Will the sermon be geared towards the graduating class? Will there be a guest speaker?
• Will there be certain hymns or praise and worship songs played during the ceremony?

3. Make an announcement of this ceremony through your church’s bulletin, website, or other avenue.

4. Invite special guests for the ceremony. This may include, but is not limited to, teachers, extended family, previous ministerial staff members that may have taught or served the graduates at any point in time.

5. Purchase token gifts for graduates if your church will be giving them gifts. Many churches choose to give the graduates a Bible or some other inspirational book.

How to set-up a scholarship program in your ministry

Perhaps you have thought about starting a scholarship fund at your church, but you are just not sure what to do. Is there any special paperwork that needs to be done with the IRS? Or, how about a scholarship that is for more than $600.00? Does your church need to issue a 1099-MISC in that situation?

Unfortunately, many churches that do offer scholarships to graduates do not realize that they are violating several charitable regulations that could jeopardize their tax-exempt status. Because of that, I want to share with you 5 important steps to take when establishing a scholarship program.

(Recommended reading: "5 Ways to Reignite Your Passion for Ministry")

5 important steps to take when establishing a scholarship program

1. Create a written program that describes the type of scholarships the church will award. 

Will the scholarships only be for Christian college attendance, or for attendance at any accredited college? You will also want to list the maximum dollar amounts you issue each semester and/or year, and any other requirements such as a minimum grade point average (GPA).

2. Present the written program in a board meeting and get it approved. 

It is necessary that the program be board approved and that at least three individuals be appointed to serve on a selection committee. I know that some people hate committees, but in this case, the committee is a good thing. It helps to prove that the church is objective in selecting recipients.

3. Make at least one public announcement. 

One of the biggest shortfalls of church and ministry scholarship programs is failure to announce them. This is a requirement.

4. Keep a case history of recipients for at least three years, and show how they were selected. 

To do this, you will need to create an application that asks questions necessary to help you select students who meet the criteria of the program. If any applicants or recipients are related to any individuals on the committee or the board of directors, please be very certain that you implement a written procedure to ensure objectivity.

5. Require that the individual recipients sign an annual statement showing that funds were used towards books or tuition. 

Have the recipients submit an invoice or other record indicating the amount of tuition or other allowable expense that is owed. You will also want to require an academic transcript to ensure that the student is enrolled at an educational institution. Lastly, you may want to consider paying the scholarship amount directly to the college or university rather than to the student.

Are the scholarships your ministry offers taxable?

In short, in order for a scholarship to be nontaxable to the student/recipient, the following two requirements must be met:

• He/she must be a candidate for a degree at an educational institution. The student may be enrolled either full-time or part-time.
• The scholarship given must be considered a qualified scholarship. This means that the scholarship funds must go towards tuition and fees paid to enroll at an educational institution, and any fees, books, supplies, and equipment required for classes at the educational institution. (Room and board is not included.)

If your church gives a scholarship for more than $600.00 and the recipient does not use it for enrollment at an educational institution or towards books and supplies for classes, then he/she must be issued a 1099-MISC.

(Recommended reading: "How to Pay a Contractor, and Form 1099-Misc.")

Investing in the lives of young adults

There are many milestones that are worth celebrating during one’s lifetime. Being able to celebrate some of those moments with your church family is an invaluable experience. By choosing to celebrate this moment, your church is expressing to the graduates that they matter and that you want to continue to invest into their lives.

Our Ceremonies Applet can help you do just that. This resource contains information and instructions on conducting 20 different ceremonies. Check it out by clicking here and begin holding ceremonies that will be memorable for everyone involved!

Handpicked articles for you:

• "Can Churches Share Their Tax-Exempt Status?"
• "Do You Know How to Classify Your Ministry?"
• "10 Simple Steps to Ensure Legal Ordination"

---