A new report shows that Tennessee’s lottery revenue proceeds are shrinking, putting the state’s scholarship programs – which depend on these funds – at risk.
The Tennessee Education Lottery Scholarship portfolio consists of 13 programs serving students pursuing higher education. Annual lottery proceeds fund all of these programs with the exception of Tennessee Promise, which has a $1.3 billion endowment.
According to an analysis by ThinkTennessee, net lottery proceeds available for scholarships fell 21.9% between the 2022 and 2025 fiscal years. Net lottery proceeds refer to the money left over from ticket sales after the lottery pays its prizes and covers its own operating costs.
The nonpartisan think tank collaborated with Tennessee Skills Coalition on the report, which found that this reduction happened while spending on the scholarships grew by 23.4% and the number of students relying on them increased by 25.5%.
“Tennessee has built one of the nation’s strongest postsecondary scholarship systems, and that success has helped more students pursue education and training after high school,” said Erin Hafkenschiel, president of ThinkTennessee. “By understanding the structural pressures on the system today, Tennessee can thoughtfully address these emerging funding challenges now in order to preserve access to postsecondary education for future generations.”
Money being redirected to voucher program
Fiscal year 2025 is the first time that scholarship spending exceeded net lottery proceeds. The report projects this gap to persist through fiscal year 2030.
The deficit in 2025 typically wouldn’t be a cause for alarm because sports wagering revenue flowed into the Lottery Education Account, covering that deficit and leaving a surplus.
However, as of July 1, 2026, sports wagering revenue is now directed to K – 12 school construction and maintenance under the Tennessee Education Freedom Scholarship Act – also known as the voucher program. This spring, amid concerns of future costs to taxpayers, state lawmakers voted to increase available vouchers from 20,000 to 35,000.
ThinkTennessee’s research director Chris Candelaria told WPLN News that there is some good news in that lottery proceeds are expected to increase between the fiscal years 2025 and 2030. Still, spending is projected to exceed those proceeds each of the next five upcoming years.
Candelaria also stressed that these are forecasts, not absolutes.
“I think overall what the picture is that there’s still going to be this deficit that exists,” he said. “So, it’s something to think about strategically.”
That strategy, he says, includes looking at how other states are addressing these challenges through revenue and structural alternatives.
One example highlighted in the report is lottery modernization – meaning Tennessee retailers could begin accepting debit cards to bring in more dollars. For example, South Carolina launched debit card sales in July 2025 and its Education Lottery Account received an additional $11.6 million. The report did note that there was an unusually large amount of jackpots that year.
Structural changes might include reviewing how award amounts are set in the different scholarship programs.
Candelaria notes that each state faces unique challenges and there’s not a one-size-fits-all solution. But, it’s important for Tennesseans to work together to prepare for any potential shortfalls to the state’s scholarship programs.
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