Tennessee Lottery Scholarship Funding Could Face Major Shortfalls Through 2030

Tennessee's lottery-funded college scholarship programs could be headed for a significant financial squeeze over the next several years. A new report released on Tuesday projects that scholarship costs will continue to outgrow lottery revenue every year through 2030, creating a potential funding gap of up to $344 million.

Key Takeaways

• Lottery proceeds have dropped 21.9% since fiscal year 2022.
• Scholarship spending reached $505 million in 2025.
• More than 169,000 students received financial assistance in 2025.
• The projected funding gap could climb to $344 million by 2030.

The report, prepared by ThinkTennessee and the Tennessee Skills Coalition, found that 2025 marked the first year lottery proceeds failed to fully cover scholarship expenses. Although the Tennessee Education Lottery recently reported an additional $15.2 million in education funding compared with the previous fiscal year, researchers say the increase is unlikely to keep pace with rising scholarship costs.

Net lottery proceeds—the money left after paying prizes and operating expenses—have steadily declined, while more students are qualifying for scholarship programs and education costs continue to rise.

Why Lottery Revenue Is Falling

One factor behind the slowdown is the growth of online sports betting, which Tennessee launched in November 2020. A University of Tennessee professor previously told lawmakers that sports wagering has likely reduced traditional lottery ticket sales.

Originally, sports betting revenue served as a backup funding source for lottery scholarships. However, after lawmakers approved a statewide private school voucher program in 2025, those funds were redirected to help pay for K-12 school construction and maintenance.

If lottery revenue doesn't cover scholarship costs in future years, the report says money will instead be transferred dollar-for-dollar from that K-12 construction fund to make up the difference.

Scholarships That Could Be Affected

The Tennessee Education Lottery currently supports 12 scholarship and grant programs funded directly by lottery revenue. These programs help students pursuing:

• Two-year and four-year college degrees
• Technical certificates and workforce credentials
• Dual-enrollment opportunities for high school students
• Scholarships for veterans
• Programs serving students with intellectual disabilities

Another major initiative, Tennessee Promise, is supported by a $1.3 billion endowment. The program helps recent high school graduates attend eligible community colleges and technical schools tuition-free after other financial aid is applied.

For years, Tennessee Promise also benefited from extra lottery revenue. Between 2022 and 2025, annual transfers ranged from $124 million to $151 million. Those transfers are now capped at $10 million, leaving the program with far less financial flexibility.

If lottery revenue no longer produces a surplus, Tennessee Promise could receive less support while also facing greater demand if other scholarship programs experience funding shortages.

Can the Gap Be Closed?

The report suggests several ideas that have been tried in other states, including:

• Allowing lottery retailers to accept debit card payments
• Introducing digital instant lottery games
• Using state general fund dollars to support scholarships
• Switching to fixed scholarship award amounts instead of increasing awards alongside tuition

A new federal Workforce Pell Grant could also help cover some short-term Tennessee College of Applied Technology (TCAT) programs, easing a portion of future costs.

Still, researchers concluded that no single solution is expected to eliminate Tennessee's projected funding shortfall. Without policy changes or additional funding sources, scholarship expenses are expected to continue exceeding lottery proceeds through 2030.