Tennessee's lottery no longer fully covers the scholarships it funds, a new report finds

For more than two decades the Tennessee lottery has helped pay for college, and the deal was simple: ticket sales fund scholarships. A new report says that math no longer holds. For the first time, the state spent more on lottery-funded scholarships than the lottery brought in.

The report, from the nonpartisan group ThinkTennessee, found that spending on lottery scholarships exceeded net lottery proceeds in fiscal year 2025. Inflation-adjusted proceeds fell about 22% between 2022 and 2025, a real-terms loss of more than $113 million, even as the number of students on scholarships and the cost of the programs both climbed. More than 169,000 students now receive aid through the system.

"We have a nationally recognized scholarship program that basically funds 13 programs, which is very, very exciting," ThinkTennessee research director Chris Candelaria told WKRN. "However, we are facing a lottery shortfall." The biggest of those programs is the HOPE Scholarship, which alone is about 76% of direct scholarship spending, alongside the Dual Enrollment Grant and Tennessee Reconnect. Candelaria said the growth is partly a success story: more students are using the aid. "The demand is there," he said.

Tennessee leans on this more than most states. In fiscal 2025 it was one of only five states where non-tax sources, lottery money chief among them, made up more than 15% of total higher-education funding. That reliance is what makes a lottery dip matter here in a way it might not elsewhere.

Students are not about to lose anything. Sports-betting taxes covered the gap last year and even left a surplus, and while lawmakers redirected most of that money to K-12 school construction starting July 1, it can still backstop scholarships if the lottery falls short. The tradeoff is that propping up scholarships would leave less for school buildings. There is better news on the sales side too: the Tennessee Education Lottery says ticket sales rose in fiscal 2026 and are up 3.5% so far this year.

Whether that is enough is the open question. "Is that rate of growth enough to offset the rate of spending necessary?" Candelaria asked. ThinkTennessee projects scholarship spending could keep outrunning proceeds through 2030, with a gap as large as $344 million, though it stresses those are forecasts. State legislative leaders have asked the Tennessee Higher Education Commission to review the programs and make recommendations later this year. Candelaria was blunt that the report is not an alarm: "It is not a call to panic and it isn't a call to cut."

The Tennessee Lottery says that sales are slightly rebounding this year as sales are up 3.4% this year, but it's still not enough to cover the shortfall. It is a useful reminder of where scratch and draw money actually goes, which we break down in where every dollar of a scratch-off goes. Tennessee's strain is the flip side of the record years other states are posting, like Georgia's $1.54 billion for education. For players who want to know which Tennessee tickets give the most back, our Tennessee scratch-off rankings lay it out.

Sources

ThinkTennessee: Tennessee's Postsecondary Scholarship System at a Crossroads (2026)

WATE / WKRN: Tennessee lottery proceeds fall short of scholarship costs for first time