Lottery-linked scholarships face lower sales, higher tuition

ALBUQUERQUE (AP) — The long lines at convenience stores during this year’s frenzy over the $1 billion Powerball jackpot were supposed to be a lifeline for New Mexico higher education.

Lottery proceeds fund scholarships that provide nearly free tuition to state schools, but the program has been struggling to stay afloat. The brief burst in Powerball ticket sales did not reverse a trend of lotto proceeds failing to keep up with the rising costs of higher education, and lawmakers are facing the possibility of having to impose dramatic cuts to the program.

Similar situations have played out in the seven other states that have lottery-based scholarship programs aimed at increasing access to college. Each has been forced to make painful changes in recent years — whether it be tightening eligibility requirements or reducing the amount of aid a student receives.

Of those states, New Mexico has one of the most generous programs, paying more than 90 percent of tuition for eligible students. Lawmakers are looking at decreasing the amount covered by the program.

The state will have to reduce the benefit to about 60 percent if no new money is found, according to New Mexico’s Department of Higher Education.

State lawmakers have introduced dozens of measures over the last decade to shore up the program’s financial underpinnings. They have made one-time appropriations to prop up the fund and shifted $19 million in liquor excise tax revenue.

During the legislative session that ended last month, Senate Majority Leader Michael Sanchez pushed through a bill allowing for unclaimed prize money to be transferred to the lottery tuition fund. Experts say that’s a step in the right direction but not enough to close the growing gap.

Other ideas include raising the bar for eligibility. To qualify, New Mexico students must maintain a 2.5 grade-point average and complete at least 15 credit hours a semester at a four-year school.

Students are frustrated at the prospect of the cuts.

“The reason we were pushing so hard for solvency this year was because we don’t want to reach the point where we’re looking at a cliff, where we either have to make a decision or students are looking at a 30 percent decrease in funding. That’s an incredibly large drop,” said Jenna Hagengruber, president of Associated Students of the University of New Mexico.

The program launched two decades ago, shortly after Georgia set the bar with its lottery scholarship and spurred new programs throughout the South. Even Georgia was forced to make changes in 2011 that resulted in a nearly 25 percent decrease in the number of students who qualified.

Tennessee has tried to buffer its program from the volatility of lottery sales by establishing an endowment that can fund scholarships through interest and earnings. While there is still uncertainty in the market, the move could provide a cushion over the short term, experts say.

The University of New Mexico, where nearly half of all first-time, full-time students benefit from lottery scholarships, is bracing for what it says could be substantial ramifications.

“This would force students to pay about $1,700 more out of their pockets annually, and most likely, it would mean borrowing more in student loans,” said Terry Babbitt, an associate vice president at the university.

New Mexico, where poverty is entrenched, already leads the nation with the highest student loan default rate, federal data show.

Even if new funding could be tapped, the problem is expected to linger.

Annual revenue from lottery ticket sales has plateaued at about $40 million. But tuition costs for eligible students are expected to top $65 million a year.

“The real problem is that New Mexico’s four-year research colleges saw the lottery scholarship as a blank check from Santa Fe and have rapidly increased tuition costs over the last 15 years,” said Republican state Rep. Jason Harper, who has been working on the issue since his election in 2013.

He suggests that the scholarships serve as a bridge for students after all other financial aid is exhausted, among some three dozen ideas floated in recent years.

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