HOPE Scholarships Could Be Reduced Amid $114 Million Deficit

A student hugging a loved one during graduation (Photo by THEC)

The Tennessee Higher Education Commission (THEC) received a briefing on Friday regarding serious shortfalls within the Tennessee Education Lottery Scholarship Program (TELS) that could lead to a reduction in the HOPE scholarship.

THEC’s Executive Director, Dr. Steven Gentile, and Senior Director of Research and Strategy, Paige Elliott, gave a presentation to the board detailing a projected $114 million deficit, as net proceeds totaled only $405 million, while the fund’s allocations totaled $519 million for scholarships and administration costs.

However, Gentile was quick to mention that the deficit is not set in stone – it can be mitigated, though by how much remains to be seen.

“This is projecting out to next fiscal year on where we'll be,” Gentile said. “Again, it's a projection, and I'll go ahead and say on the front end, the numbers right now for this fiscal year are trending above the projections, which is a good thing… We're trending above that, but still, how do we cover that deficit if it were to occur this year?”

TELS provides funding for 13 programs, including the HOPE scholarship, Tennessee Reconnect, Tennessee Promise, and high school dual enrollment, serving roughly 170,000 students across the state.

Possible Solutions

Gentile brought up sports wagering revenue as a possible aid. A projected $87.5 million in betting funds could be redirected to address the deficit under a provision of the Tennessee Education Freedom Scholarship Act passed last year. The act is frequently referred to as vouchers.

“Last year, the General Assembly passed a bill that was (for) the voucher program that would redirect sports wagering away from the lottery program and towards a K-12 construction fund for schools that are in distressed counties in a program to be overseen by the treasurer’s office,” Gentile said. “However, there was a provision in that bill that said if there is a deficit in (the) lottery, that money will first go towards that deficit.”

That would leave a $26.5 million deficit, and Gentile noted that two reserves could be used to offset the remaining balance: a $10 million Lottery for Education reserve, which can be used with no repayment requirement, and a General Shortfall Reserve. The shortfall reserve has a starting balance of $100 million, and $16.5 million would be needed to wipe out the remaining deficit, but it must be repaid in future fiscal years.

There is also an option to repay the reserve funds immediately, which would entail pro rata reductions in scholarships.

“That $16.5 million is about a 3 percent requirement in pro rata reduction of the Hope Scholarship of $4,500,” Gentile said. “That’s a little over $100 in reduction of that Hope level scholarship.”

He also mentioned that last year, the Lottery for Education Account garnered just over $6.3 million in interest accruing on the revenue as it is spent. As of now, the governor’s budget is only estimating $75,000 in interest for 2026, which Gentile believes is conservative.

“We can anticipate that number is going to be higher this year to help build towards that balance,” Gentile said.

Next Year’s Numbers

Gentile also noted that a conservative estimate for next year would amount to a $141.5 million deficit. The fund totals $524 million in appropriations, made up of higher education scholarships and administration costs, against just over $399 million in net lottery proceeds, and may also pay back the entirety of the $16.5 million General Shortfall Reserve funds.

However, those projections do not include any revenue from the Sports Wagering/Construction fund. Gentile said that is because those funds are not meant to be relied on and are intended only for use when needed.

“In theory, the law says that sports wagering (money) is there to close the deficit,” Gentile said. “You shouldn’t plan to have a deficit.”

Secretary of State Tre Hargett asked Gentile if this would be the first time scholarship awards had been reduced if the THEC decided to go that route, to which Gentile said it would.

“To me, that emphasizes the seriousness of the situation,” Hargett said.