Higher Education Reports: The Lottery effect

Shane Broadway, director of the Arkansas Department of Higher Education, left Little Rock early on July 17 to promote the Arkansas Academic Challenge Scholarship, the program funded mostly by the state lottery.

Speaking in Hot Springs to a meeting of the state’s alternative classroom teachers, Broadway encouraged them to talk up the program with their students.

“We want to make sure alternative students know they should apply,” Broadway said.

Those students, along with all other incoming Arkansas high school seniors, will be part of the fourth college freshman class to benefit from what’s widely known as lottery scholarships, worth $5,000 annually for the 2010-2011 freshman class and $4,500 for the 2011-2012 freshmen. The amount varies based on the contribution each year from the Arkansas Scholarship Lottery.

The Arkansas Scholarship Lottery posted record earnings of $474,076,726 for its 2012 fiscal year ended June 30 — $10 million more than last year’s earnings. The earnings resulted in net proceeds of almost $97.6 million for scholarships. Last year, proceeds were $94.2 million.

SCHOLARSHIP BOOST
Julie Baldridge, communications director for the Arkansas Scholarship Lottery, said the lottery has funded more than 64,000 scholarships since fall 2010 – the first year for the scholarships. That doesn’t include new students who will begin classes this fall.

Many believe the Academic Challenge scholarships have led to the steady 2.1% overall  increase in the state’s two- and four-year institutions and marked growth at some schools, including the University of Arkansas where the undergraduate population has soared. The Fayetteville campus saw an increase of 475 students from fall 2007 to fall 2008 and 414 more students in 2009 – the two years before the lottery scholarships were first awarded – to increases of 1,394 students in 2010 and an additional 1,806 students in fall 2011.

“You can look at the growth of the UA system institutions and see it’s had an impact,” said Dr. Donald R. Bobbitt, president of the University of Arkansas System. He said almost 25,000 students are expected on the Fayetteville campus for the fall 2012 semester.

But have the scholarships led to abnormal tuition increases as has been the case in some states?

SCHOLARSHIPS BOOSTING TUITION?
Sen. Jimmy Jeffress, D-Crossett, said he’s heard people’s concerns that more available money to students via the lottery scholarships has given universities more leeway to raise tuition.

“The lottery scholarship is doing nothing to increase their (universities’) costs. It may be helping because it’s providing more students to help pay their bills,” Jeffress said.

The scholarship also does nothing to lower the cost of providing higher education, he said. Jeffress acknowledged that an increase in students feeds the need for more teachers and classrooms.

When asked if the increase in available student funds has given colleges administrators more leeway in increasing tuition, Bobbitt said it does not.

“I’ve heard no conversation where that’s been talked about in that manner,” Bobbitt said. “I’ve looked at tuition increases the last four years and looked at what’s been happening nationally and ours is quite a bit below what’s happening nationally. I don’t see the correlation.”

The average tuition in the United States in 2009-2010 and 2010-2011 was $6,695 and $7,136, respectively, while Arkansas’ average tuition was $5,846 and $6,117.

Tuition and fees for four-year schools in Arkansas increased an average of 6.21% and 3.03% in 2008-2009 and 2009-2010, respectively – the two years prior to the debut of Arkansas’ lottery. Average increases in the two years following the lottery’s debut were 4.82% in 2010-2011, and 5.5% in 2011-2012.

LOTTERY REPORT
Jeffress was concerned about the possible link prior to the Scholarship Lottery’s start. A 2009 report prepared for Jeffress by the Bureau of Legislative Research compared tuition and fee increases in lottery-funded states affiliated with the Southern Regional Education Board (SREB). Florida, Georgia, Kentucky, South Carolina, and Tennessee all have merit-based programs and two – North Carolina and Virginia – have need-based programs. West Virginia and Georgia, at that time (2009) offered full tuition to students. The states varied on academic requirements.

“Concern has been expressed in several states that there is an emerging pattern of colleges and universities raising tuition and fees after the implementation of lottery-funded scholarships, to a level that cancels out benefits of these scholarships,” the report states.

Researchers concluded that, taken as a whole, the data did not support a generalization that lottery-funded scholarships led to tuition increases. They said the issue is driven by many factors, including legislative decision-making, how higher education institutions are governed, the economy, educational background of students, family income, and stage of lottery development.

In examining the two years prior to and the two years after a lottery began, researchers found:
• Tuition and fee increases were actually less in Florida, Georgia and Tennessee in the two years after the lottery began than in the two years prior.

• The differences in tuition and fee increases in the years before and two years after the lottery in Kentucky and Carolina was less than 4%.

• Only West Virginia and South Carolina showed large increases. West Virginia tuition increases more than doubled in the succeeding years compared to the years prior (from 13.3% to 28.6%), while the rate of tuition increases in South Carolina more than tripled (from 13.4% to 41.2%).

TUITION CONTROL
An investigation of tuition increases by the South Carolina Policy Council in 2007 – South Carolina’s lottery began in 2001 – found lottery money was being used for more than just education, and contributed to outsized spending habits by universities.

“Rather than merely complimenting existing educational spending, the infusion of lottery has subsidized reoccurring appropriations for the universities, who have responded by raising tuition,” the Policy Council’s report said. “Most scholarship recipients now pay more out-of-pocket than they would have before the introduction of the Education Lottery.”

South Carolina’s tuition increases were double the national average, according to the report. The University of South Carolina and Clemson averaged increases of 13%annually compared to 6% nationally at that time.

The Bureau of Legislative Research’s report concluded that rising tuition resulted from limited state control over what universities and colleges can charge students.

“The states where tuition increases are less in years following the lottery debut have more putative control over tuition than South Carolina,” the report said.

ADHE records show only two institutions, UAMS and Arkansas Tech University’s Ozark Campus, showed double-digit tuition increases in undergraduate programs from the 2011-2012 year and the upcoming year. UAMS showed increases of 11 and 13% in two different degree programs. ATU-Ozark showed a 14% increase in tuition from $2,790 to $3,180 per academic year.

Changing levels of government support for higher education will be the focus of the second part of this story.