Losing HOPE

A popular scholarship that has become a near-birthright for Georgians is going broke, and state officials begrudgingly acknowledge they’ll have to cut participation or reduce benefits if it is to survive.

Since its introduction in 1993, the HOPE Scholarship program -- short for Helping Outstanding Pupils Educationally -- has seen an explosion of participation and spawned similar merit-based programs in other states across the country. But with the lottery funds that support the program slowing in growth, and an uptick in the number of students participating, HOPE’s reserves are being drained and will be completely tapped by the close of the 2013 fiscal year, according to current projections. The expected shortfall in the next two years exceeds $550 million.

The state of HOPE has prompted some soul-searching on the part of lawmakers and college officials, who are torn between the fiscal realities that spell trouble for HOPE and the well-founded belief that any tinkering with the program is politically perilous. In its current form, HOPE covers full tuition at the state’s public colleges for students who graduate from high school with a 3.0 grade point average.

“Our standing joke on this is that legislators will want to reform the program any way they can, unless it cuts the number of awards or amount of awards, which are the only two options,” says David Lee, director of strategic research and analysis for the Georgia Student Finance Commission, which administers HOPE.

The stark choices confronting HOPE were laid out by the commission this month, when a presentation before the state’s House and Senate higher education committees illustrated the program’s precarious financial position. But the alarm bells going off about HOPE’s future have not led to any new legislation that would alter the program, and some lawmakers appear reluctant to talk about painful remedies with an election fast approaching.

“Everybody is up for reelection,” says State Senator Seth Harp, a Republican who chairs the Senate Higher Education Committee. “You get past Nov. [2], then you might find some people willing to talk about it.”

But Harp isn’t seeking reelection, and that may be why he seems more inclined to state publicly that Georgia really only has two options: Either make HOPE harder to get by reintroducing family income caps or raising the academic requirements, or reduce what HOPE covers.

“It’s always toxic to take something away,” he says. “Not having [income] caps on it has joined the ranks of a sacred cow, but my comment about sacred cows is they make good hamburgers at certain times.”

Income caps appeared to be a nonstarter, however, for the slate of gubernatorial candidates who ran in both the Republican and Democratic parties. Karen Handel, who lost in the Republican primary to Nathan Deal, and Roy Barnes, the Democratic nominee, all said this month they wouldn’t support an income cap. But Senate Democratic leader Robert Brown has rallied behind the idea. [Information has been updated from a previous version].

The state initially placed a family income cap of $66,000 on HOPE, then raised the cap to $100,000 in 1994, before removing it altogether in 1995. While it's unclear to what extent reintroducing income caps might affect participation levels and costs, history shows the number of awards spiked as those restrictions were removed. There were 42,755 individual students who received HOPE aid in 1994, but that number more than doubled to 98,026 when the cap as removed in 1995. This year, student participation reached nearly 252,000.

While not without its own set of political risks, tinkering with the benefits side of the HOPE equation appears more palatable to some than transforming it into a need-based model. Shelley Nickel, former president of the Georgia Student Finance Commission, says there may be an effort to decouple HOPE awards from tuition, establishing a standard payout for particular types of colleges, regardless of tuition increases. That would differ substantially from the current model, which covers full tuition at any public institution, regardless of the charges.

While a standard award of $2,000 per semester already exists for full-time students at private colleges, HOPE could conceivably establish a flat grant that would differ based on whether a student attended a public Research I institution or a less expensive public institution, Nickel says. If such a system were adopted, it’s likely tuition would increase at a greater rate to “reflect the cost of education,” Nickel says.

“HOPE is a dampener on the actual amount tuition can go up, because we’re very aware that whatever the board approves for a tuition increase impacts the HOPE program,” says Nickel, interim president of Gordon College, in Barnesville, Ga. “I think our [tuition] increases have been deflated by the HOPE program.”

A 2003 commission studying HOPE also put forward a number of other suggestions, including:

• Using SAT scores as part of eligibility criteria.
• Using end-of-course tests to determine eligibility.
• Raising the GPA requirement above the current 3.0.

Other alterations to HOPE have already been legislatively implemented through a series of “triggers” that will reduce benefits as reserves deplete. Projections suggest the HOPE book allowance will be cut to $150 from $300 by this summer, followed by a complete phaseout of the awards for all but Pell Grant-eligible students in summer 2012. By summer 2013, mandatory fee payments will be eliminated.

Subsidized by Poor

The criticism of HOPE and the other merit-based programs it has inspired is that these scholarships subsidize college students who could already have afforded postsecondary education. HOPE supporters would argue, however, that the money invariably ends up in the hands of needy students. About $117 million of HOPE awards went to Pell-eligible students in 2004, the Georgia Student Finance Commission reported. That comprised about 29 percent of all HOPE awards given to students at public colleges, private colleges and technical colleges that year.

Since the lottery is the source of HOPE's funding, the money coming into the program is disproportionately supplied by poorly educated, low-income African Americans, research on HOPE demonstrates. At the same time, the scholarships are more likely to be awarded to counties with higher per capita incomes, a 2001 study concluded.

David Mustard, an associate professor of economics at the University of Georgia who co-wrote the 2001 study as well as other HOPE research, says the criticism of HOPE's funding model applies to other lottery-funded programs across the U.S. At the same time, it's clear the scholarship has succeeded in improving college-going rates in Georgia, Mustard says. Between 1988 and 1997 -- the five years before and after HOPE began -- the state's first-time-freshman enrollment rates grew by about 9 percent, according to research conducted by Mustard and Christopher Cornwell, a professor of economics at Georgia.

The increases in college-going rates are among the benefits that make HOPE a darling in the eyes of lawmakers. State Senator Jack Hill, the Republican chair of the appropriations committee, has suggested he’d like to see tighter enrollment restrictions on the lottery-funded pre-kindergarten program to free up more dollars for HOPE scholarships.

“I would rate [preserving HOPE] the top priority, because I’m so convinced college degrees go hand-in-hand with income growth,” Hill says.

For all of the criticism of HOPE having no need-based restrictions, Hill points out that no such restrictions exist for Pre-K, either. While state officials say 53 percent of the children receiving Pre-K dollars are “at-risk,” Hill’s response is that “47 percent are not.” Consequently, Hill has been pushing for a sliding scale charge for Pre-K participating families who don’t qualify as low-income. He has no stomach, however, for reducing HOPE benefits for middle-class families who “don’t get too many breaks."

“I’m just not in favor today of making it either means-tested or restricted to a certain amount, because you will then have forfeited what I think is the allure of the HOPE scholarship,” Hill says.

Of the $1.1 billion budgeted for lottery-funded programs in the 2011 fiscal year, Pre-K will receive about one-third of the money, according to budget projections. Since the bulk of the lottery dollars are actually spent on HOPE’s college scholarships, lawmakers would be “delaying the inevitable” by shifting focus to Pre-K eligibility, Mustard says.

“Now we’re at a place where the low hanging fruit, in terms of the changes that have to be made, are kind of gone,” he says. “So we have tougher decisions.”