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Popular scholarship lotteries shift money from poor to rich
Lottery chart

States that use lottery funds to pay for college scholarships should think carefully about who pays and who benefits, suggests a new report from the American Association of State Colleges and Universities.

Titled A Gamble With Consequences, the report notes that 44 states now have lotteries, and 26 of those earmark the proceeds for education.

The AASCU report also notes that lottery scholarships are enormously popular politically and unlikely to be repealed. Instead, the report suggests ways to tweak the programs to make them better serve those who pay for them.

The poor and poorly educated buy far more lottery tickets than do the better-off, the report by AASCU policy analyst Kati Lebioda notes, adding that “poor families are helping send wealthy students to college.”

“It’s a stable political coalition,” says David Mustard, a business professor at the University of Georgia, who has been researching lottery scholarship programs for over 15 years. “If you tried to end the lottery, middle-income people will complain that scholarships were gone, and low-income people would complain that they couldn’t play it.”

Eight states currently use lottery funds for post-secondary scholarships and grants: Florida, West Virginia, Georgia, Tennessee, Arkansas, Kentucky, New Mexico and South Carolina.

“We need to revise these programs so that they work better from a social equity standpoint,” said AASCU associate vice president Dan Hurley.

In addition to the social equity problem, Hurley notes that states that earmark lottery funds for scholarships actually tend to reduce their overall spending on higher education.

“If you have a lottery scholarship program and you’re feeling good about it, then you don’t feel a need to invest in the operational side of higher education,” Hurley said.

The report also emphasizes a common critique of lottery as a means of taxation, noting that “after payments to winners, sales commissions to vendors and lottery administration expenses, only about 34 cents on every dollar generated by lotteries ends up in the state budget.”

“That’s way out of kilter,” Hurley said.

In short, Hurley said, “this report highlights some unintended consequences of paying for scholarships with lotteries.”

Merit vs. need

The disconnect between those who pay for the lottery and those who get the scholarships can be quite startling.

At New Mexico State, the report notes, families earning between $20,000 and $39,000 a year get just 30 percent of the lottery-funded scholarships, while over half of those scholarships go to families earning over $100,000 a year.

The Georgia program originally had family income caps. At first, any family with an income over $66,000 would not qualify. That was bumped to $100,000 in 1994, and then eliminated altogether in 1995.

According to a report by the Harvard Civil Rights Project, a 2003 poll showed that 60 percent of Georgians would favor restoring the $100,000 cap. But the legislature has not taken it up.

Lotteries often underproduce relative to their expectations, the report notes, and returns tend to diminish over time. Combined with escalating tuition costs, lower revenues force states to adjust their scholarship formulas.

Several lottery scholarships, including Florida, Tennessee, Georgia and New Mexico, have recently had to dial back the amount offered or raise their qualifications, which only increases the socioeconomic disparities, the report notes.

Even if a complete shift to need-based funding is not possible, the report argues, programs could be adapted to make them better serve those who most need them and the communities that bear the lottery burden.

Both Tennessee and Georgia attempt to address this inequity with programs that use lottery funds for technical programs and certificates, like heating and air conditioning technician training, which can lead to a solid job without attending college.

The programs are available regardless of high school GPA and test scores, making them more accessible.

But the net drain on poor communities imposed by lottery programs remains extremely high, the report notes, arguing that much more could be done to return more of those funds to the communities that generate them.

No apologies

University of Georgia graduate Daniel Jones, 26, is making no apologies for his lottery-funded HOPE scholarship. He graduated in 2012 with a degree in risk management and insurance and now works in finance for an insurance company in Richmond, Virginia.

Jones is well aware that the people who paid for his scholarship probably didn’t send their kids to college. On the other hand, Jones didn’t exactly come from a background of extreme privilege either. His parents helped a little during his first semester, and toward the end, when he was already married, he got a Pell grant. As a student, he worked part-time at an insurance agency and his wife worked full-time at an optometrist.

Between the two of them, they ended up with roughly $25,000 in student debt, despite the HOPE scholarship.

Like most Georgia HOPE scholarship recipients, Jones is white and middle class, and he says he doesn’t know anyone who plays the lottery, at least not on a regular basis.

“From my perspective it wasn’t much of a paradox,” Jones said, speaking of the fact that lottery funds come from the poor and uneducated. “I don’t have a problem using the funds as they see fit. If you don’t want to play the lottery, you don’t have to play the lottery.”

Email: eschulzke@desnews.com