When a school sends out that financial aid package, usually the school merit awards are taken into account already so that you don’t see money being taken away which leaves people with bad feelings. It’s often done internally.
At schools where Work study and Subsidized loans are part of the package, usually those are replaced by awards that come in later and are reported to Fin Aid.
Many schools will lay out exactly how they replace aid when a student receives any outside or internal award after Fin aid packages are released. It can vary from school to school