This article is from the Financial Aid, Scholarships, and Fellowships FAQ, by Mark Kantrowitz with numerous contributions by others.
If you are receiving any kind of financial aid from university or
government sources, you must report the scholarship to the
financial aid office.
Unfortunately, the university will adjust your financial aid
package to compensate. Nevertheless, the outside scholarship will
have some beneficial effects. At some universities outside
scholarships are used to reduce the self-help level. For example,
at MIT 40% of the scholarship amount is applied toward the
self-help level, and the rest replaces institutional funds. At
other universities outside scholarships are used to replace loans
instead of grants.