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Shortcomings of State Lottery-Funded Scholarships Outlined in New Paper

Despite their political popularity, state lottery-funded scholarship programs may not be the best mechanism to address college access and affordability, according to a new policy brief from the American Association of State Colleges and Universities.

There are 44 states with lottery programs, 26 of which have earmarked funds for K-12 or higher education. While 11 states fund higher education with lottery revenues, eight use the money for merit-based scholarships specifically. The Georgia HOPE scholarship in 1993 started the trend, with others being established in Florida, Tennessee, and elsewhere.

Lotteries have been a popular stream of additional state revenue to help fund higher education, but the AASCU paper by Kati Lebioda, contributing policy analyst for AASCU, suggests the proceeds rarely match projections, making for an unpredictable source of support.

A few years ago, some states had to cut back or tighten the eligibility of their scholarship programs when state revenues declined.

The paper finds that lottery programs often have taken the place of state funding for higher education rather than supplementing it. States without lotteries spend 10 percent more of their budget on education than states with lotteries. Numerous studies have found that while educational expenditures tend to increase right after states adopt lotteries, overall spending tends to decrease over time, the brief notes.

State lottery-funded scholarships tend to be "last dollar" scholarships, which means the awards fill in only after Pell Grants and other financial aid has been exhausted. As a result, these programs tend to give less additional money to low-income families and more to students from wealthier families that do not qualify for other aid, not correcting the inequity in college access, the AASCU research notes. While most state state aid is need-based, just $301 million in grants from lottery-based scholarships are based on need while $1.6 billion in grants were based on academic scholarships.

The brief concludes by recommending new efforts to restructure the financing and access of state-run lottery scholarships so they are more sustainable and useful in expanding college access.

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