Revenue gaps raise concerns for Tennessee’s lottery-backed scholarship program

Tennessee education lottery scholarship

Tennessee’s lottery-funded scholarship system faces a projected funding gap that could affect future decisions about awards, eligibility, and funding. From fiscal year 2022 through fiscal year 2025, inflation-adjusted net lottery proceeds fell while spending on directly funded scholarship programs increased.

Lottery proceeds are projected to grow during the next several years, but they are expected to remain below scholarship spending through fiscal year 2030. That continuing gap matters to students pursuing degrees, certificates, and technical credentials.

Tennessee education lottery scholarship funds

The program count and spending total are correct. The FY2025 report gives a total reported recipient count of 169,412 and expenditures of $504,978,396, reasonably rounded to $505 million. The portfolio contains 13 active programs, 12 of which draw directly from annual lottery revenue.

However, THEC warns that aggregate financial-aid counts may duplicate a person who receives awards from more than one program. Therefore, “169,412 students” should not automatically be interpreted as 169,412 unique individuals.

Tennessee education lottery scholarship reach

The Tennessee Education Lottery Scholarship portfolio includes 13 active programs serving different types of learners. In fiscal year 2025, THEC reported 169,412 scholarship-recipient records and approximately $505 million in total expenditures across eligible universities, community colleges, technical colleges, and other institutions.

Twelve programs draw directly from annual lottery proceeds, while Tennessee Promise is paid through a separate endowment and reserve structure. The programs support recent graduates, returning adults, veterans, students with intellectual disabilities, high school students earning college credit, and people pursuing workforce credentials.

Lottery dollars lost ground

The strongest warning sign is the decline in inflation-adjusted net lottery proceeds. Measured in constant 2025 dollars, proceeds fell 21.9% from fiscal year 2022 through fiscal year 2025, a decrease of approximately $115.3 million.

In fiscal year 2025 alone, inflation-adjusted proceeds declined 19.9%, or approximately $102.2 million. The lottery continued to generate education revenue, but the real purchasing value available for scholarships fell as program spending increased.

More students raised the cost

While inflation-adjusted lottery proceeds declined, scholarship participation and spending moved in the opposite direction. From fiscal year 2022 through fiscal year 2025, spending on the 12 directly funded programs rose 23.4%, while reported recipient counts increased 25.5%.

Fiscal year 2025 was the first year in which spending on directly funded scholarship programs exceeded net lottery proceeds. The rising recipient count demonstrates increased use of the programs, but it also creates pressure to address recurring funding gaps.

HOPE carries the biggest share

The HOPE family of scholarships receives the largest share of Tennessee’s lottery aid. In fiscal year 2025, HOPE awards used $369 million, representing 76.6 percent of the $481.8 million spent across the 12 programs funded directly by proceeds.

Those awards served 75,264 students, nearly half of enrollment in the direct programs. Because HOPE is so large, even a modest adjustment to eligibility or award levels could affect families and change how much remains for smaller scholarship programs.

College credit starts early

The Dual Enrollment Grant helps high school students earn college credit before graduation. In fiscal year 2025, it served 58,078 students for $70.7 million, making it Tennessee’s second-largest direct lottery scholarship program by spending.

Its spending grew 189 percent over five years, partly after more college courses became eligible. The related Middle College Scholarship served 1,239 students for $4.3 million, showing how early college options now claim a larger share of funds.

Smaller grants meet focused needs

Several smaller programs serve students whose goals or circumstances differ from college paths. Tennessee Reconnect and TCAT Reconnect supported 8,919 adult learners in fiscal year 2025, costing $21.4 million as participants balanced classes, employment, bills, and family responsibilities.

Wilder-Naifeh, TN STEP UP, and Helping Heroes served another 12,621 students for $16.5 million. These grants support technical trainees, students with intellectual disabilities, and veterans, proving that smaller budget lines can still deliver meaningful help to defined groups.

Tennessee Promise works differently

Tennessee Promise does not depend on lottery proceeds in the same way as the other programs. It is supported by a trust worth about $1.3 billion, including protected principal and a reserve that pays scholarships through earnings and transfers.

The program provides last-dollar aid, covering remaining tuition and required fees after other grants apply. It helps recent high school graduates attend community colleges, Tennessee Colleges of Applied Technology, and eligible schools offering associate degrees with less direct tuition expense.

Little-known fact: Tennessee Promise became one of the first statewide “last-dollar” scholarship programs in the United States.

A new cap changes the math

For years, leftover lottery proceeds gave Tennessee Promise’s reserve a major boost. From fiscal years 2022 through 2025, annual transfers ranged from roughly $124 million to $151 million, helping strengthen the cushion used to support tuition awards for eligible students.

Starting in fiscal year 2026, those transfers are capped at $10 million annually, even when larger surpluses exist. The trust remains substantial, but smaller deposits and rising expenses could gradually reduce its protection against costs and demand from additional students.

Sports betting money shifts course

Sports-wagering tax revenue previously helped cover lottery-scholarship costs. Through June 30, 2025, 80% of collections from Tennessee’s 1.85% sports-wagering privilege tax was allocated directly to the Lottery for Education Account. That revenue covered the fiscal year 2025 scholarship deficit and left an approximately $3 million surplus.

Beginning July 1, 2025, the 80% allocation shifted to an account supporting K–12 school construction and maintenance. When net lottery proceeds are insufficient to cover scholarship expenditures, sports-wagering revenue must first be deposited into the Lottery for Education Account to cure the deficiency, reducing the amount available for school construction by the same amount.

The gap may last through 2030

The report projects scholarship spending will exceed net lottery proceeds every year through fiscal year 2030. Lottery income may grow, but it begins from a lower level and is not expected to catch up with the programs’ rising costs soon.

Under the report’s different forecasts, the cumulative shortfall could reach as much as $344 million by 2030. That estimate is not a final bill, but it shows why one strong sales year would not solve the longer structural funding imbalance.

A revenue boost can bring new possibilities and new challenges. Learn more about Virginia’s budget discussions and what comes next.

No single fix closes the gap

Tennessee has choices, but none offers a complete answer alone. Other states have accepted debit cards for lottery purchases, introduced digital instant games, added general tax dollars, reviewed overlapping aid programs, or changed awards from tuition-linked promises to fixed formulas.

A new federal Workforce Pell Grant may also assist certain short technical programs, though its full impact remains uncertain. The report suggests Tennessee will need a mix of revenue changes and program decisions to protect access for future students.

The story behind changing tariff revenue is worth a closer look. Find out what’s driving these shifts and why they matter.

Should Tennessee change how it funds these scholarships? Share your thoughts in the comments.

This slideshow was made with AI assistance and human editing.

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