SC's "Education Lottery" - Some Ruminations

In light of falling public monies available for higher education and the accompanying rise in tuition, someone asked me a question that I've heard several times over the past year or two, even predating the current national economic downturn: "Whatever happened to all the lottery money that they told us would go toward education? If we got all of this money from the lottery, shouldn't tuition be going down?"

The South Carolina Education Lottery started in 2002 with the promise of being a veritable panacea for the state's struggling education system. Despite debate about how lottery revenue should be allocated between primary/secondary education and higher education, lottery money has in fact been devoted to financing education, as illustrated in the above link; credit the legislature on making good on that. However, the question here is about unintended consequences.

Here's the thing. Most lottery revenues have gone to pay scholarships for qualifying students. The goal was to make a college education more accessible to state residents. This is a laudable goal, in and of itself; when someone is able to have access to opportunity based upon their own merits, society is better off. However, the problem is that this (obviously) increased the number of students seeking to enroll in state colleges and universities. In econ-speak, demand for college education increased. When demand increases, price of course goes up. That's because price is basically just a rationing system: more people trying to get a limited number of spots in the state's colleges and universities drives up the price that everybody pays.

To a point, this price increase was offset by state subsidies (a large portion of tuition costs are subsidized by the government at state schools), but as state tax revenues fell with declining manufacturing income in South Carolina over the past couple of years, the subsidy well began to dry up. Schools had to begin raising the tuition that they charge students to make up the difference in cost. Since lottery-funded scholarships only cover a portion of tuition costs, that means that even financially-disadvantaged people will see price increases over and above what they receive in state assistance, as well as people not receiving state assistance. As a result, the goal of expanding access to education has most certainly not been realized to the degree expected.

In addition to all of this, the sharp national economic downturn has exacerbated this problem, as the state saw its tax revenues decrease at an even greater rate. State money to public institutions has decreased markedly, forcing tuition to go even higher, and furthermore, as institutions find ways to cut costs, supply will likely decrease as well. In other words, we will potentially have a lot of applicants seeking to fill a shrinking number of slots. This means the tuition increases will probably continue for the near future. Lottery money may help some with the increased cost, but to the extent that this props up demand, and therefore price, it probably will not help very much.