Money that is disbursed to you for project-related expenses must remain under your direct control. You are certainly allowed to pay people for services they provide. Sponsored projects are not allowed to provide cash to individuals for use at their discretion without directly supervising the funds and restricting how they can be used. This means that funds cannot be provided without a direct expense attached to the payment and that refunds cannot be issued to donors. If you are planning on giving grants, scholarships or cash awards, please speak to our staff.
Many projects choose to offer "scholarship" opportunities to their communities. This is only possible if your project is paying for all expenses directly, thus allowing an individual to take part in your services at a discounted rate or for free because donations are directly paying any expenses that would be incurred by this individual's involvement. Funds cannot be given directly to the individual, but rather pay the expenses that they cannot.
Related: Raising funds for another nonprofit