In a week when private colleges, looking to make a play for students and demonstrate their altruism, announced myriad changes to their financial aid strategies, the conversation about merit vs. need-based awards was never far from plain view.

In Tennessee, that debate is hot for another reason: The state, which has been faulted for spending most of its aid money without regard to need, is considering plans that would significantly increase spending on low-income students.

The aid issue is particularly prickly in states such as Tennessee, Florida and Georgia, where lottery proceeds fund merit awards and where need-based spending lags well behind. According to a 2005-6 report from the National Association of State Student Grant and Aid Programs, Florida spends nearly $3 on aid with a merit component for every $1 on aid that factors students' financial needs -- and the ratio is far more lopsided in Georgia. While states still typically spend more on need-based aid, the trend is moving in the opposite direction.

Merit scholarships have undoubtedly helped institutions gain a competitive edge and keep students who would otherwise go out of state for college, but critics liken the programs to giveaways, seeing that they don't include an income ceiling for recipients. Some also loathe the idea of working class lottery participants funding college for the more affluent.

Recent reports from the Education Trust and College Board lament what authors identify as a prioritizing of merit-based aid in both private and public higher education.

Based on the state student aid report, Tennessee spent $125 million in non-need aid compared with $51 million in need-based aid in 2005-6. The Education Trust report gave the state's flagship, the University of Tennessee at Knoxville, an F in low-income access.

When Tennessee started its lottery award program several years ago, it kept alive its need-based aid program, called the Tennessee Student Assistance Award. Data from the Tennessee Higher Education Commission show that state spending on the TSSA program has plateaued over the past three years and the number of students served has decreased from 23,000 in 2004-5 to less than 20,000 in 2006-7.

Under a proposal backed by the commission and pushed hard for by the Tennessee Independent Colleges and Universities Association, the state would use interest earned on the lottery reserve account from the Tennessee Education Lottery Scholarship to supplement legislative appropriations to the need-based award, which students can use to attend any two- or four-year college in the state.

Doing so, the higher education commission says, would increase state need-based grant aid by $20 million annually and serve an additional 10,000 students.

Also at issue is how to spend some of the projected $400 million lottery reserve. The commission estimates that in 2007-8, the merit-based program -- also referred to as the HOPE Scholarship -- served 78,000 students with $233 million in eligible money.

Students are eligible for the HOPE scholarship, which provides up to $4,000 per year, if they have a 21 composite ACT score or a cumulative 3.0 grade point average. Those who qualify financially can get an additional $1,500 through the need-based program. Students are eligible for the TSSA award if their expected family contribution is $2,100 or less. In 2006-7, 90 percent of students receiving the award had family income under $30,000, and nearly half were first-generation college students.

Claude Pressnell, president of the independent colleges association, said the HOPE scholarship program serves a different population than does the need-based aid program. Of those who currently receive the assistance award, about one-fourth also receive funding from the lottery award.

"[Lawmakers] should realize that the lottery scholarship program isn't the end-all solution to providing financial aid and isn't the ultimate solution to responding to workforce needs," he said.

Pressnell said the proposal has the support of the Tennessee Student Assistance Corporation, which administers the state's education scholarships and grants. He's also confident that the state's General Assembly will look favorably at the plan. It's likely to come up when legislators return in January, he said, because the lawmakers want to tackle the issue before election preparation gets into full swing.

"We're already seeing a redirection of attention to these needy, qualified students," he said.

Within the last month, Tennessee Gov. Phil Bredesen also expressed an interest in allowing low-income students to still receive some aid money if their grades slip. As it stands, students who receive both HOPE scholarship and TSSA funds lose both awards if their college grades far below a certain threshold (Renewal requirements are at least a 2.75 at end of freshman year and at least 3.0 each year thereafter.)

Pressnell said some view that requirement as biased against students from lower socioeconomic groups who might need more academic help. One idea is to consider allowing the financially needy students to keep the supplement regardless of grades. Another is to allow the students to receive a portion of the full need-based scholarship based on a sliding scale -- with students performing better in the classroom receiving slightly more than their counterparts.

Richard G. Rhoda, executive director of the higher education association commission, said he supports both the interest proposal and the governor's ideas.

"It's good to see people thinking about how to keep existing students from falling through the cracks," he said.

Sandy Baum, a Skidmore College economist and senior policy analyst at the College Board, said she's encouraged to see a state recognizing the "problems created by merit-based grant programs."

Added Kati Haycock, director of the Education Trust: “Given the shift in state aid away from need-based, anything that brings dollars toward these programs is hugely important right now."