Did the college scholarship fund you were expecting to receive money from fizzle out this year or last? I’m hearing multiple variations on this story this fall and winter, especially as the details pertain to endowed funds.

Some scholarships that are issued to students are based on annual donations or fundraisers. Whatever is raised or donated goes directly to the next cycle of scholarship applications. Money in = money out.

An example of direct scholarship funding is Monroe Thrift Shop Association, which awards dozens of $500 scholarships each year to students in Monroe County, Mich. The amount of scholarships awarded is based in part on the money that the association earns via its second-hand clothing and household goods store in downtown Monroe.

Endowed scholarship funds are accounts that are set up with the intention that a fund will earn interest that can then spin off to be used for scholarships. This  method works out very well as a permanent or long-term fund – except in years when the return on investments fizzles out.

Many of the scholarships that the Community Foundation of Monroe County in Monroe, Mich., issues to graduating local seniors are from an endowed fund. Many of the scholarships awarded by Monroe County Community College in Monroe, Mich., to its students are from an endowed fund. Some of the scholarship money at my college came from an endowed fund. Some of my daughter’s scholarship money at her college comes from an endowed fund.

If the money isn’t available for students from those dedicated funds, it’s not available. As MCCC officials explain, “The number of scholarships and amounts awarded each year vary based upon returns on the investment portfolio.”

In response to the shrinking investment returns, colleges and scholarship sponsors have been appealing to prospective donors to help when and how they can with contributions.

For example:

“We had to tell many good students, some whom had received aid the previous year, that we had exhausted our funds. We expect the requests for scholarship assistance to be as high or higher in 2010,” Charles Bierbauer, dean of the University of South Carolina’s college of mass communications and information studies, wrote in a recent letter to South Carolina alumni such as myself.

What does that mean for college families as they make plans for the 2010-2011 academic year?

First, do not take any scholarship money for granted. Academic, community service and need-based student grants come and go every year for reasons that have nothing to do with the investment returns. Those who have the money can decide to do whatever they want with it.

You also have to search every possible resource for scholarship funds.

The best places to seek out funds are at your high school counselor’s office and your college financial aid office. The reason is that a lot of scholarships are written specifically for those who attended a specific high school, live in a specific community, or who are attending a specific college.

School officials know where their students are getting money. Pay attention to the notices that are on file at your high school and college, and follow up on all the application details and deadlines.

The other key point is to make sure you file the Free Application for Federal Student Aid and watch the deadlines. Many private scholarship awards are not announced until late spring or early summer. But to get the most out of your FAFSA application, that paperwork should be filed in late February or early March depending on your school’s or state’s deadline.

If you end up having to sign for student loans to make up the difference between cost of attendance and scholarship funds, you want those loans to be as low-cost and student-friendly as possible. That’s why FAFSA is so important.

If you want help getting that FAFSA file, the College Goal Sunday campaign provides free hands-on workshops every February for parents and students across the country. The Monroe, Mich., workshop will be held Feb. 10.

I plan to participate in a personal finance chat on Twitter 7 p.m. Wednesday Dec. 30 that focuses on finding and applying for scholarships. Watch this blog and the Budget Pulse blog for details. Twitter hashtag will be #bp for that chat, follow screen names @monroeonabudget and @budgetpulse.

This post was featured on the Dec. 28 edition of the Carnival of Personal Finance.