Advice for giving money to needy students

Q. I would like to start giving away $1,000 a year to one college student, for books. How do I get started?

A. The first step in setting up a scholarship is to decide, broadly, who you intend to help, say nonprofit experts. Do you want to lend a hand to a needy student? Or do you want your scholarship to reward merit, such as academic achievement or community involvement? Do you want to support a student from a particular high school? A student who is attending a particular college or studying a specific major?

Mike Guyer-Wood, national director of marketing and sales at Scholarship America, an organization in Minneapolis that helps distribute donations earmarked for students, recommends deciding if the scholarship will be awarded to each student only once, or to the same student for four years.

“It depends on the donor’s philosophy,” he says. “Do they want to touch a number of students, or do they want to make a lasting impact to touch one student’s life for four years?”

Next, determine whether you will give away $1,000 each year, as long as you are able, or whether you would like to make a larger one-time gift to create an endowment that would allow the scholarship to exist “in perpetuity.”

According to Kevin Murphy, president of the Berks County Community Foundation, in Reading, Pa., “It would take about $20,000 to endow this fund to give away $1,000 a year.” That initial investment is based on a distribution of 5 percent a year, he says.

The simplest way to give money to a needy student is simply to give it to a college and earmark it for a specific purpose. However, if the amount is modest, you might want to approach a public institution rather than a private college, says Jan Kurtz, director of development at Reed College, a private liberal-arts college in Portland, Ore.

“A gift of that size isn’t something that we would take on,” she says. Because of the high cost of attending Reed – around $40,000 annually for undergraduates – the college accepts only endowed scholarships and requires them to grant at least $10,000 a year.

By contrast, a public community college, such as those supported by the Maricopa Community Colleges Foundation, in Tempe, Ariz., would gladly accept a gift of $1,000 a year earmarked for scholarships, or a scholarship endowment of $20,000 (the foundation’s minimum endowment is $10,000), says Steve Schenk, the foundation’s executive vice president.

But if you want to set up an endowed scholarship fund, and have a significant amount to set aside for such a gift, here are some options:

A community foundation would cost you nothing to set up an endowed fund, though you would pay annual administrative fees to the foundation. For example, says Mr. Murphy, his group charges 2 percent of a fund’s fair market value each year.

Or you could choose to make your gift through an organization like Scholarship America, which accepts annual gifts, Mr. Guyer-Wood says. (Such groups may require a minimum gift; for instance, says Mr. Guyer-Wood, his charity’s endowment minimum is $100,000.) However, Scholarship America would charge at least $700 a year to cover administrative costs. A better bet for you, he says, would be to make your gift to your local chapter of Dollars for Scholars, a program of Scholarship America through which volunteers raise money for students in their area. By going that route, the administration of your scholarship would cost you nothing.

One thing you should not do, Mr. Murphy says, is create a private foundation to give out your scholarship. “To set up a private foundation,” he says, “you’d have to incorporate an entity and seek a tax exemption, and for $20,000, that would be insane.”