Beyond the Formula: Other Key Funding Sources for Tennessee Schools (Lottery, Federal Grants, EFS)

By Sky Arnold | Published on June 16, 2025

While the Tennessee Investment in Student Achievement (TISA) Act serves as the state's primary formula for distributing funds to K-12 public schools, it doesn't tell the whole story of education funding in Tennessee. Several other significant funding streams—originating from state lottery revenues, federal grants, and new state-level programs—play crucial roles in supporting students and shaping the educational landscape. Understanding these additional sources is essential for a complete picture of how education is financed in the Volunteer State.

For a comprehensive overview of the main funding formula, visit our guide: Understanding Tennessee School Funding.

The Tennessee Education Lottery Scholarship (HOPE) Program

The Tennessee Education Lottery Scholarship (HOPE) program is a well-known source of financial aid for Tennessee students pursuing higher education. Funded entirely by revenues from the state lottery, it provides scholarships to students attending eligible in-state colleges and universities. This program is a key part of the state's Drive to 55 initiative, which aims to equip 55 percent of Tennesseans with a degree or certificate by 2025. [1]

While these funds are designated for postsecondary education and do not directly finance K-12 school operations, the health of the lottery program is a critical part of the broader education funding conversation. Any projected funding shortfalls or changes to the program can influence legislative priorities and public perception of the state's overall commitment to education at all levels.

Federal Grants and Programs

The federal government provides significant funding to Tennessee schools, typically in the form of grants targeted at specific student populations or educational needs. This funding is distinct from the state's TISA formula and often comes with specific requirements for how it can be spent.

• Targeted Support: Federal funds are often directed toward supporting economically disadvantaged students, English Learners, students with disabilities, and other specific subgroups, as outlined in state guidance.
• Pandemic Relief Funds (ESSER): In recent years, school districts received a large, though temporary, influx of federal relief funds through the Elementary and Secondary School Emergency Relief (ESSER) program. These funds were crucial for helping schools respond to the challenges of the COVID-19 pandemic, supporting everything from technology purchases to learning acceleration programs.
• State and Federal Partnership Dynamics: The relationship between state and federal funding is not always straightforward. In 2025, for instance, Tennessee's decision to decline participation in a federal partnership for the summer EBT program (SUN Bucks) sparked debate. While the state launched its own smaller, state-funded program, the move meant forgoing an estimated $75 million in federal funds that would have provided summer grocery benefits to a much larger number of low-income students across the state. This highlights how state-level decisions can directly impact the flow of federal dollars intended to support students.

The Education Freedom Scholarship (EFS) Act

One of the most significant new funding mechanisms in Tennessee's education landscape is the Education Freedom Scholarship (EFS) Act. Passed in 2025, this program, often referred to as a universal school voucher program, allows families to use taxpayer dollars for private school expenses. You can find official information on the TDOE's EFS Program page.

How the EFS Program Works:

• Funding Source: The EFS program is funded in part by revenues from online gaming. State law earmarks 80 percent of these specific tax dollars for K-12 education needs under the EFS Act.
• Scholarship Details: For the 2025-26 school year, the program offers 20,000 scholarships, each worth approximately $7,295. These funds can be used for tuition and/or fees at registered private schools in Tennessee.
• Eligibility Tiers: The 20,000 scholarships are divided into two tiers:
  1. 10,000 scholarships are prioritized for students whose annual household income does not exceed 300% of the federal poverty level, or for students with disabilities.
  2. 10,000 scholarships are available to any eligible student, regardless of household income.
• High Demand: The program saw immense interest upon its launch, with over 33,000 applications submitted within hours, far exceeding the 20,000 available spots.

While the EFS program does not directly fund public schools, it represents a significant allocation of state-managed funds toward private education. Its existence and popularity are central to any discussion about the state's overall education spending priorities and its impact on the broader educational ecosystem.

Conclusion: A Complex Funding Puzzle

The TISA formula is the primary driver of funding for Tennessee's public school districts, but it is only one piece of a much larger and more complex financial puzzle. State-level programs like the HOPE Scholarship and the Education Freedom Scholarship Act, along with a dynamic and sometimes contentious partnership with the federal government, all contribute to the resources available to students. A full understanding of Tennessee's commitment to education requires looking beyond the formula to see how all these different streams interact to shape opportunities for learners from kindergarten through college and career.

The Tennessee Firefly will continue to provide in-depth coverage of these and other funding issues. To return to our main guide on the state's primary funding formula, please visit: Understanding Tennessee School Funding.