How Poor Families Fund College for Wealthy Students

Photograph by Corbis

Eleven states earmark lottery revenue for public colleges and universities, and you’d think those schools would be thrilled about getting the money. Think again. A new analysis (PDF) by the American Association of State Colleges and Universities argues that lotteries aren’t a good way to fund public education because they’re like a reverse Robin Hood: taking from the poor and giving to students who least need the help.

There are two sides to this equation. First, the source of the funds: Lotteries are essentially regressive taxes. “In almost every study performed by economists, findings show that as household income increases, the proportion spent on lotteries decreases,” the report says. So skewed is the payout that our colleagues at Bloomberg News ranked states along a “Sucker Index” to see which gamblers fair the worst. It’s worth noting that the highest Sucker score went to Georgia, whose lottery-funded HOPE scholarship program has been so successful in keeping high-caliber college students in-state that it’s become a model for other states.

If the lotto money were largely going to help lower-income students go to college, the impact would be less regressive, but that’s not the case. As ProPublica reported last year, states have been increasingly giving grants based on merit rather than on families’ finances. The new report includes data from the National Association of State Student Grant and Aid Programs that show this is doubly true for college grants funded by the lottery.

“Research shows that merit-based programs disproportionately benefit white and higher-income families,” the report says. It cites research that found half of the students who got lotto-funded grants at a state university in New Mexico came from families earning more than $100,000, while 30 percent came from families earning $20,000 to $40,000. This is compounded by the fact that the grant programs are structured in ways that give more money to students at four-year colleges than at community colleges, where low-income and minority students are more likely to attend. As state face tight budgets, they tend to make the merit requirements even more stringent, further tipping the scale.

This all comes at a time when eroding state funding for public colleges is a central driver of the rapid increase in student debt. The lotto programs may be accelerating that decline in public funding because, the report stays, states without lotteries “end up spending approximately 10 percent more of their budget on education” than those that don’t.

The report acknowledges that getting rid of lotto-funded grants is a political nonstarter but says there are still ways to make them more equitable. States could tweak the programs to give more benefits to lower-income students, such as funding more support services to make recipients graduate on time or adding supplemental need-based awards that augment the merit grants. The poor may still be funding the programs, but at least they would benefit more.

    Before it's here, it's on the Bloomberg Terminal.