The FinAid office, in accordance with rules set forth by the school and the Department of Education, creates a budget that is applied to each student (equally). This budget includes the exact cost of tuition and estimates for everything else (books, school supplies, room and board, and other essential expenses). What the FinAid office tries to do is award you enough to cover this budget, or at least get as close as possible (so if they budgeted $12,500 for a semester's worth of expenses, they'll try to award you up to $12,500 for that semester). So, if your scholarship puts you over this budget, they will reduce your financial aid package by the appropriate amounts (so back to the $12,500 budget example, if you were awarded $12,500 in financial aid, and your scholarship gives you $1,000 for the semester, then your financial aid award will be reduced by $1,000, to compensate for the scholarship). They have to do this because they are not allowed to give a student more than the budget (dept of education rules), and they have to take into consideration all forms of financial aid the student is receiving, which includes federal and school grants, any loans, and scholarships, even if the scholarship doesn't come from the school/government.