How to Start a Scholarship Fund

Whether you’re interested in starting a scholarship in the name of a loved one, supporting students in their path through higher education, or starting a scholarship fund as part of your company’s corporate giving strategy, opening a scholarship fund can be a powerful way to make a difference in the lives of individuals seeking to advance their education and opportunities for the future.

Wondering how to start a scholarship fund? In this article, we’ll walk you through all of the basics of scholarships, which includes the IRS guidelines for how to start a scholarship fund in Texas, as well as some important strategic considerations to make, depending on the purpose of the scholarship fund that you want to establish.

Key Insights

• Anyone—regardless of wealth level or philanthropic experience—can start a scholarship fund, with many successful funds beginning with modest initial contributions.
• Contributions to scholarship funds qualify for immediate charitable tax deductions, with cash donations deductible up to 60% of Adjusted Gross Income (AGI) and appreciated securities up to 30% of AGI.
• Scholarship funds must meet specific IRS requirements, including objective selection criteria and genuine educational expenses; partnering with the Community Foundation helps ensure full compliance and eliminates excess complexity.
• The Community Foundation can handle investment management, administrative responsibilities, donor continuity, and provide deep community connections, turning scholarship establishment from an unwieldy undertaking into a smooth process.
• Strategic scholarship planning can create lasting educational opportunities by connecting philanthropic vision to long-term funding strategies that benefit future generations.

Table of Contents

• Can I start my own scholarship fund?
• Is it hard to start a scholarship fund?
• How much money is needed to start a scholarship fund?
• What are the IRS rules for scholarship programs?
• Can you receive a tax deduction for starting a scholarship?
• Tax implications of setting up a scholarship fund
• Other legal requirements for scholarship funds
• How to start a scholarship fund
• How a community foundation can help you facilitate your scholarship
• Partner with Greater Houston Community Foundation today

Can I start my own scholarship fund?

Can anyone start a scholarship fund? The straightforward answer is yes; anyone—regardless of wealth level or philanthropic experience—can start a scholarship fund. While many donors assume scholarship funds are only for the exceptionally wealthy or require complicated legal structures, the reality is far more inclusive. 

Scholarship funds can be established by individuals, families, businesses, and even groups of friends working together toward a shared educational goal. Your scholarship might support students in a specific geographic area, those pursuing particular fields of study, first-generation college attendees, or learners facing specific barriers to educational access. 

Your scholarship can benefit greatly by partnering with a trusted community foundation like Greater Houston Community Foundation. Why? With a trusted partner like the Community Foundation, you gain access to professional management and expertise that makes the process streamlined and efficient, allowing you to focus on the meaningful work of supporting the next generation of leaders and thinkers.

Is it hard to start a scholarship fund?

Although starting a scholarship fund requires dedication, planning, and adherence to a few specific guidelines, it’s easier than you might think. As you consider working with a community foundation or another scholarship provider, you should have the following things in mind:

1. Purpose. Clearly articulate the purpose and goals of your scholarship fund. Are you opening it in memory of your grandmother who was a mathematician? Are you hoping to help kids from the neighborhood you grew up in? Identify your target audience, whether it be students pursuing a particular field or those with financial needs.
2. Eligibility criteria. Eligibility criteria are related to your purpose, but they are not one in the same. How do you want people to qualify for the scholarship? Eligibility criteria can be regional, academic, financial, or community-based. Whoever you partner with on your scholarship should help ensure that your eligibility criteria are fair and transparent. 
3. Budget and funding. How much are you looking to contribute? Where exactly is the money coming from? Even if you’re not sure how many students you want to sponsor or for how long, you should have some figures on how the scholarship will be funded and how it may impact your personal finances. 

Although there are many other considerations to go over before it is time to launch your scholarship, these three building blocks will get you a long way. You don’t have to have absolutely everything about your scholarship program figured out—that’s what a third-party scholarship administrator like Greater Houston Community Foundation is for—but you should have some strong ideas about your intentions and audience. In the early stages, knowing who you want to make a difference for is really all you need.

How much money is needed to start a scholarship fund?

A common misconception is that launching a scholarship fund requires a massive upfront investment. While some donors establish substantial endowments, the financial threshold for starting a scholarship program is far more modest than many assume. 

Greater Houston Community Foundation works with donors to establish funds based on their unique financial capacity and philanthropic goals. The minimum to establish a new scholarship fund at the Community Foundation is $100,000. Donors who wish to support scholarships with a smaller initial gift may do so through the Houston Opportunity Scholarship. 

The amount you choose depends on your resources, the scholarship amount you want to award annually, and your long-term vision. Early conversations with philanthropic advisors will include discussing different scenarios and identifying an approach that aligns with your goals. What matters most is that your scholarship makes a meaningful difference. Whether your fund annually awards a single $1,000 scholarship or multiple five-figure awards, what matters is your commitment to supporting educational opportunity.

What are the IRS rules for scholarship programs?

IRS guidelines for starting a scholarship fund will differ based on whether your scholarship is an individual grant or part of a scholarship program at your organization; businesses that help the community through scholarship funds are held to incredibly high standards by the IRS, and are only eligible for tax-exemption under certain circumstances, to ensure that the programs are being run for the benefit of the community and not the benefit of the company.

Some of the most important IRS requirements for scholarship funds include:

• Your scholarship must provide objective criteria for selection, meaning recipients cannot be chosen arbitrarily or based on personal relationships alone.
• Scholarship recipients generally must be enrolled as students at accredited educational institutions, though eligible institutions can include undergraduate universities, graduate schools, technical programs, and certain vocational training centers.
• To give a scholarship that is tax-free to recipients, the funds must support genuinely educational expenses such as tuition, fees, books, and required supplies. Scholarships to cover living expenses or other needs may be taxable for the student.

The IRS guidelines for starting a scholarship fund concern whether the fund will be tax-advantaged or treated as taxable expenditures. So, under what circumstances can scholarships be tax-deductible?

Can you receive a tax deduction for starting a scholarship?

The IRS stipulates that grants to individuals are taxable expenditures unless the following conditions are met: 

1. The grant is awarded on an objective and nondiscriminatory basis under a procedure approved in advance by the IRS; and
2. The grant is either:
   1. a scholarship or fellowship that is used for study at an educational institution,
   2. a prize or award that is excludable from gross income under Internal Revenue Code section 74(b),
   3. or to achieve a specific objective, produce a report, or improve a literary, artistic, musical, scientific, teaching, or similar capacity, skill, or talent of the grantee.

Company scholarship programs are held to the same standards as grants to individuals and are taxable expenditures unless they meet the above requirements. Further, the IRS provides the following additional guidance for company scholarship programs: 

1. The preferential treatment derived from employment must not have any significance beyond that of an initial qualifier for the scholarship, AND;
2. The selection of scholarship grantees must be controlled and limited by substantial non-employment-related factors, including a selection committee separate from the private foundation, its organizer, and the employer concerned, AND;
3. There must exist only a limited probability that qualified employees or their children will receive scholarship grants.

All this to say: you may be eligible to open a scholarship fund in a potentially tax-advantaged manner, and contributions to scholarship funds can be tax-deductible, but it’s critical that you follow specific guidelines outlined by the IRS. Please make sure to consult with a qualified tax professional for additional guidance.

Tax implications of setting up a scholarship fundscholarship recipients

One of the most attractive benefits of establishing a scholarship fund through the Community Foundation is the immediate tax advantages available to donors. When you contribute assets to your scholarship fund, if you meet the criteria established above, your contribution will qualify for a charitable tax deduction in the year you make the gift, regardless of when scholarship distributions occur. This tax benefit applies whether you donate cash, appreciated securities, real estate, or other qualifying assets.

This is the kind of charitable giving tax deduction you can expect if you follow IRS guidelines:

The tax benefits can extend beyond your income taxes. By contributing appreciated assets rather than selling them first and donating cash, you may avoid capital gains taxes while receiving a deduction for the full market value of your gift. For donors with substantial estates, establishing a scholarship fund as part of your legacy planning can provide estate tax benefits that amplify your philanthropic impact.

Other legal requirements for scholarship funds

Establishing a scholarship fund comes with legal responsibilities that go beyond IRS compliance, encompassing ethics, and transparency. These include adopting non-discrimination policies, preventing conflicts of interest, ensuring transparency through regular updates, and maintaining meticulous recordkeeping. Compliance with state and federal laws is crucial, with scholarship management partners helping to navigate relevant regulations. Other considerations include data privacy, collaboration with educational institutions, and comprehensive planning for impactful community support. Please ensure to seek guidance from a qualified tax professional for further assistance. 

Working with a qualified partner can eliminate the need to create a separate nonprofit organization, reducing complexity and administrative burden. The Community Foundation provides fund oversight, investment management, grant distribution administration, and compliance support—services that would otherwise require significant investment and expertise.

How to start a scholarship fund

Whether you’re wondering how to set up a scholarship fund to assist students or how to set up a scholarship fund for a nonprofit or corporation, starting a scholarship can happen in a few easy steps. 

1. Define your eligibility criteria

The first step in launching your scholarship involves clarifying who will benefit from your fund. Your eligibility criteria translate your philanthropic vision into concrete parameters that guide scholarship selection. Consider which aspects matter most to your mission: geographic boundaries, academic disciplines, socioeconomic status, career aspirations, or specific challenges you want to address. Scholarship programs succeed when criteria clearly connects to the donor’s underlying values and goals.

2. Decide who you will be partnering with for scholarship management

Although you can create your own organization to administer your scholarship fund, it is much more time-intensive and costly than engaging a trusted organization that can help manage and distribute your scholarship. When you partner with an organization like Greater Houston Community Foundation, you gain access to comprehensive infrastructure that includes investment management, fund administration, compliance support, and donor relations expertise. The Community Foundation handles the behind-the-scenes work that can help make sure your scholarship operates efficiently and maintains its tax-exempt status.

3. Establish a selection process and selection committee

Your selection process should balance accessibility with rigor, encouraging strong applications while remaining fair and manageable. Successful scholarship programs often involve a committee of people who understand the scholarship’s mission, can fairly evaluate applications, and represent diverse perspectives relevant to your fund’s goals.

Consider whether your committee will include family members, friends, educators, or professionals in relevant fields. Under the Pension Protection Act of 2006, donors and their representatives must remain in the minority on any scholarship committee. If you partner with us, scholarship applications will be reviewed by our Scholarship Review Committee, which is composed of education and nonprofit leaders, high school counselors and teachers, college professors, and other community volunteers. Some donors work with the Community Foundation to help refine the application process, establish evaluation rubrics, and support the communication of award decisions to recipients.

4. Promote your scholarship

Getting qualified applicants requires effectively communicating that your scholarship exists and explaining how students can apply. Your promotion strategy might include posting information through schools, nonprofit organizations serving your target audience, social media, email networks, and community events.

5. Distribute the funds

Once you’ve established your selection process and chosen scholarship recipients, the exciting moment finally arrives when your generosity directly transforms lives. Your fund’s distribution schedule can be flexible—some donors award scholarships annually, while others distribute funds on alternate years or accumulate assets for larger future distributions.

Whether you’re planning a meaningful award presentation ceremony to honor the scholarship recipients and showcase the impact of the fund or are quietly awarding the recipients their grants, working with an experienced scholarship manager can make distributing your scholarship funds much easier.

How a community foundation can help you facilitate your scholarship

Partnering with a community foundation can turn scholarship establishment from a complex, multi-step undertaking into a simple, streamlined process. Greater Houston Community Foundation can serve as your trusted advisor and operational partner, handling administrative responsibilities while preserving your vision and philanthropic autonomy. Here are a few ways in which the Community Foundation supports scholarship creators:

• Investment management: Your fund assets are professionally invested according to your risk preferences, with potential for tax-free growth that increases your scholarship’s long-term impact.
• Administrative support: The Community Foundation manages application processing, compliance documentation, and grant distribution, reducing your administrative burden.
• Donor continuity: We partner with your current advisors to ensure continuity, efficiency, and that your philanthropic legacy endures.
• Deep community connections: The Community Foundation’s deep local knowledge and established nonprofit relationships ensure your scholarships reach qualified candidates and make meaningful impact.

Additionally, partnering with a current 501(c)(3) nonprofit organization may potentially enhance your eligibility for charitable tax deductions. High-net-worth individuals looking to make a difference in their communities should have trusted partners in strategic philanthropy who can help them facilitate their charitable efforts for maximum impact, whether they are interested in donating to natural disaster relief organizations or setting up Houston scholarships.

Partner with Greater Houston Community Foundation to start your Houston scholarship fund today

Although we cannot teach you how to start a scholarship fund in one article online, we can make things easier by working with you to develop and execute your scholarship fund. Greater Houston Community Foundation offers full-service management of scholarship programs to help donors open the door to academic success for Houston students. Over $5.4 million has been awarded to over 1,000 students during the 2025-2026 school year. 

Whether you’re motivated by gratitude for your own educational experience, commitment to supporting education in your community, or desire to create generational impact, scholarships and economic mobility are deeply connected, and your scholarship fund can contribute to breaking cycles of limitation and expanding opportunity.

Looking for other ways to give back? Greater Houston Community Foundation is here to partner with you on your giving, whether you’re interested in starting a donor advised fund or creating a youth philanthropy program. Call us at 713-333-2210 or reach out directly to get started.

More Helpful Articles by Greater Houston Community Foundation: 

• Your Guide to Making Noncash Charitable Contributions
• Private Family Foundation Tax Benefits: What You Need To Know
• Donating Property to Charity: What You Need to Know
• Should I Be Bunching Charitable Donations?
• How To Make a Bequest to a Donor Advised Fund

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