HOPE's dwindling finances worry lawmakers

Students and their parents better start saving more money for college.

Georgia’s popular HOPE scholarship is at the tipping point as demand outstrips its funding.

"This is not a train wreck about to happen," said Rep. Len Walker (R-Loganville), chairman of the House higher education committee. "The train wreck has happened."

Lawmakers agreed Monday that changes are needed to keep the merit program used by more than 200,000 students annually financially viable. That legislation isn't expected until this winter. Instead a joint meeting between the House and Senate higher education committees served to shock lawmakers into understanding the severity of the situation.

The Georgia Lottery, which supports the scholarship and prekindergarten programs, is one of the most successful in the country but it can’t keep up as more people attend college and tuition rises.

Projections show a shortfall of about $244 million for this fiscal year, said Tim Connell, president of Georgia Student Finance Commission, which oversees HOPE. The shortfall is estimated to be about $317 million for the 2012 fiscal year, he said.

The scholarship has reserves to cover the shortfall. But those accounts, which totaled about $1 billion earlier this year, will drop to about $371 million by the end of the 2012 fiscal year.

Some lawmakers wondered whether the money was flowing to the correct students.

Of the 24,415 students who started with HOPE in the fall of 2003, only 46 percent maintained grades high enough to keep the scholarship after their freshman year, Connell said.

Sen. Nan Orrock (D-Atlanta) questioned whether it was time to re-instate an income cap for eligibility.

When the program began, only students whose families earned less than $66,000 a year were eligible. The cap was later lifted to $100,000 and then eliminated.

"If we are spending loads and loads on families whose students were always going to go to college because their families had the income and then we are getting significant failure rates, what are we really doing?" Orrock asked. "We all hear the anecdotes about the families buying condos in Athens or buying their students cars because they are getting HOPE."

Another lawmaker suggesting funding HOPE at just 70 percent. Others said they wanted to compile suggestions from agency heads and university leaders.

HOPE provides full tuition and some book and fee money to college students who maintain a 3.0 grade-point average.

Lawmakers addressed HOPE's finances in 2004 when they tightened eligibility requirements and instituted triggers that would reduce benefits if reserves got too low.

The first reduction, cutting book awards from $300 to $150, will take place next fall, said David Lee, vice president of strategic research and analysis for the commission. The subsidy would be eliminated altogether the following year. Starting with fall 2013, students would no longer get money for mandatory fees, Lee said.

These cuts won't save much money. Slicing book awards in half saves about $20 million, Connell said.

Some lawmakers questioned if lottery sales will improve once the economy rebounds. Georgia Lottery President and CEO Margaret DeFrancisco said the goal is to increase sales but she couldn't predict "astronomical increases."

During the 2010 fiscal year, which ended June 30, the lottery paid out more than $2.1 billion in winnings while depositing about $884 million into the education accounts for HOPE and prekindergarten. That wasn't enough for the scholarship, forcing the commission to dip into reserves for the first time in nearly a decade.

"Lottery revenues will never, in my opinion, approach the HOPE expenditure again," Walker said.

Walker said the higher education committees will meet again in November to discuss solutions.

"I hope we can work in a unified, bi-partisan way to deal with this issue," he said.