DEBT WITHOUT DEGREE: Students drown in debt despite a $524 million state surplus

More than half a billion dollars in surplus lottery funds, meant for Georgia’s college students, is sitting unused in the state’s coffers even as many drop out of school, unable to afford to continue.

Top lawmakers say the reserves guarantee the stability of the state’s hallmark aid program. But some question the need for holding such a large amount, arguing it could be better used to boost college completion rates and keep student debt down.

Altogether, the state has more than $1 billion in reserves for the HOPE Scholarship and pre-K programs. Nearly $500 million is restricted to use only in the event of a funding shortfall. Beyond that, officials have quietly grown a second pot of reserve money from $160 million in 2011 to $524 million in 2016 that has no restrictions. The government could use it to give larger scholarships or grants to students in state universities, colleges and technical schools.

As that fund grew, Georgia’s university system sustained significant budget cuts and pushed more of the cost of college onto families. That helped raise student debt to record levels, and thousands of students have dropped out because of their inability to pay.

“It’s unclear to me just if there’s any strategy around that unrestricted reserve,” said Jennifer Lee, a higher education policy analyst at the Georgia Budget and Policy Institute. “In law, there’s no specific direction on what this money is supposed to be used for… It’s just sitting there.”

Gov. Nathan Deal said revenue projections are crafted at the start of the year, and income may vary, depending on the economy. During the Great Recession, the state had to draw from HOPE reserves to pay out the merit-based scholarships.

“Depleting these funds put the program’s long-term solvency at risk,” said Deal, a Republican. “In fact, when I took office in 2011, some projections showed HOPE going bankrupt by 2013. This was not an option, and with the help of the General Assembly, we made bipartisan reforms to save the program and to ensure HOPE would remain strong for years to come. In order to safeguard one of the most generous scholarship programs in the nation, a robust reserve fund is critical.”

In 2015-16, the HOPE program gave out more than $612 million in aid to students. That’s down from $747.6 million in 2010-11.

In 2011, fearing a budget shortfall, the Legislature cut HOPE from covering full tuition and fees. Today, the merit scholarship covers, on average, only 65 percent of tuition and mandatory fees per semester for students enrolled for a full 15-hour course load, leaving thousands to turn to loans to make up the difference.

Universities and colleges have limited money to hand out in scholarships, and Georgia does not have a statewide needs-based aid program. The cost of earning a degree has grown beyond the reach of moderate-income families – the average yearly price tag of attending a state four-year school, including living expenses, is now $14,791, up 77 percent from 2006 to 2015, the state auditor says. There was no tuition increase last school year.

Those who drop out have to pay back their loans, but without a degree, finding a job in which they can earn enough to make their payments can be very difficult. Some end up in default while others manage only to pay down the interest each month.

Related: At Georgia State, more black students graduate each year than at any U.S. college

More than 56,000 students who took out federal loans to pay for Georgia’s four-year regional, state and research universities left before earning their degree between 2013 and 2015, according to the most recent available federal data. That’s in addition to 44,000 people who ended up in the same perilous position at the mostly two-year state colleges and technical colleges. They have debt, but no degree.

Raven Searcy, a HOPE scholar with $15,000 in student loans, is trying to make her way out of this financial web. After graduating from Northside High School in Columbus, she dreamed of attending Savannah College of Art and Design, but it was too expensive. So she made what she believed was a more realistic financial choice — in 2012 she enrolled at Columbus State University. She thought she would be OK, paying her way with a HOPE scholarship, a Pell grant, loans and a part-time job at the Peachtree Mall.

“It was hard to juggle work and classes,” said Searcy, 23. “I didn’t realize how expensive it was going to be.”

Still, she did everything she was supposed to – she organized her work hours to fit her class schedule, working weekends when necessary, and kept her grades high enough to hang onto her HOPE scholarship. Students lose it if they don’t maintain a B average. Less than one-third of students who began with HOPE in 2010 still had it when they graduated.

Because of the cuts made in 2011, HOPE still left Searcy about $2,400 short per year of what she needed for tuition and fees. She dropped out after her second year to work a fulltime job at the mall and save up some money.

“I think if I could have had tuition and fees covered, I would have probably kept going,” she said. “With all those loans, it was just a lot to handle.”

Seven other states have lottery-funded college scholarship programs, and all have different policies regarding reserves. West Virginia doesn’t have a reserve fund. Arkansas requires $20 million to be set aside for a rainy day (a quarter of the amount that goes to scholarships). Tennessee gave out $311 million from its 2015-16 proceeds and keeps $110 million in reserves. Additional proceeds go to support the state’s free community college initiative.

By contrast Georgia has been squirreling away $73 million on average per year for the past five years. The legally mandated reserve has grown to $490 million from $332 million, and the unrestricted reserve, not mandated by law, to half a billion dollars in that time.

Restoring HOPE to its original mission – covering full tuition and fees at University System of Georgia schools – could cost up to $227 million a year and drain the reserves quickly, based on estimates from 2015 data. But there are other, less expensive options. It would cost up to $82 million annually to cover full tuition. The cost to fully cover tuition at technical colleges would be $21 million a year, according to the state Department of Audits and Accounts.

Related: The new North-South divide: public higher education

That’s an option that State Rep. Stacey Evans, a Democrat who is running for governor, has been pushing. Evans agrees it’s vital to have money in reserve but questions why the state has put so much away.

“It’s our money,” said Evans. “It’s money that the state told people… we’re going to spend on education. We have all this money coming in from the lottery that we’re not using for [that] purpose.”

Republican Lt. Governor Casey Cagle, who is also planning a run for governor, disagrees.

“I am proud to have led our state to grow Georgia’s HOPE reserves so that we will always meet the obligation made to our scholarship students,” said Cagle.

He points to Senate Bill 5, passed by the Senate but not the House, that would increase the percentage of lottery proceeds that goes to the state treasury as a way to increase funding for HOPE.

The original 1992 law creating the lottery stated that as close to 35 percent as is practical of lottery earnings should be given to the state to spend on education, but the quasi-public Georgia Lottery Corporation (GLC) hasn’t given the state 35 percent since 1997. Last year it was 25 percent.

The GLC argues that it hands out bigger prizes, which results in more tickets sold and therefore bigger revenues overall. The senate bill would require the lottery to hand over 30 percent of its proceeds by 2019, unless its ticket sales dropped by 5 percent or more. State Sen. Fran Millar, chair of the Senate Higher Education Committee, estimates that would translate to another $80 million for HOPE each year.

Like Gov. Deal, he said it’s important for the state to be able to keep the promises it has made to current HOPE recipients should another recession hit. “In order to be prudent, the billion is probably not a bad number for that reason,” Millar said.

Government officials and residents from all sides of the political spectrum tend to agree that HOPE has made college more affordable for hundreds of thousands of Georgians. But slowing growth in lottery collections, increasing numbers of students applying to college and rising tuition meant demand for the scholarship would soon outstrip supply, so the Legislature made changes in 2011.

Among them, HOPE stopped paying for fees and covered only a percentage of tuition. In addition, the Legislature created Zell Miller scholarships, which cover full tuition for state university students who have a 3.7 GPA and a 1200 SAT score or are their high school’s valedictorian or salutatorian. Zell recipients overwhelmingly attend the state’s most expensive public colleges, leaving less money for HOPE scholars.

The addition of Zell scholarships also shifted more money to middle- and upper-income students. In 2013, 58 percent of HOPE scholarships went to middle- and upper-income families, while 79 percent of Zell Miller scholarships went to this group, according to state data compiled by the Georgia Budget and Policy Institute.

And although black students make up about 30 percent of Georgia’s university system, only 5 percent of Zell Miller scholars are black. White students, who make up 54 percent of public university students, receive about 78 percent of Zell scholarships.

Although there was widespread agreement in 2011 that HOPE needed to be fixed, the solution was put together with some haste – it was signed by the Governor 22 days after being introduced to the General Assembly.

Evans was in her first term while this was happening and vividly remembers how quickly the process went.

HOPE needed to be changed to prevent bankruptcy, but she said the legislation upended an original goal of the program: to make college more affordable for people who didn’t have the money to pay for it.

“The rewrite in 2011 was a horrible mistake overall,” she said. The Zell Miller SAT score requirement “ignores the realities of who does well on those tests and the ways you can do well on the test,” she said, citing the use of test prep and tutoring, which can be financially prohibitive for low- and middle-income families.

Related: Reality check: After four tough years of college prep, high school seniors grapple with gaps in financial aid

Since 2011, legislation has been routinely proposed to expand the program, but it stalls. In 2013, a piece of legislation was put forward to restore HOPE to paying for full tuition. In 2015, the Senate passed a bill that would require HOPE to pay at least $2,000 per semester, but the House never voted on it. In 2017, a bill was introduced that would base HOPE award amounts on the previous year’s tuition.

“Every legislative session we’re hopeful… that there will be some measures put in to place to kind of stop the bleeding and the student loan debt crisis, but it just does not seem to be a priority for state lawmakers,” said Brandon Hanick, from Better Georgia, a left-leaning advocacy group. “In fact, nothing has been done to restore HOPE to the pre-2011 levels. That’s obviously a huge component to the student loan debt.”

“It’s our money. It’s money that the state told people… we’re going to spend on education.”

The average Georgia graduate in 2015 carried loan debts of $27,754, according to the Project on Student Debt.

Meanwhile, the high cost of college continues to drive away students. Alec Harden entered Georgia State University in 2012 as a top student from Luella High School in Locust Grove. His 3.8 GPA not only earned him a HOPE scholarship, but other academic ones as well.

Still, by the end of his first year he had racked up $10,000 in loans. The prospect of taking on more debt gave him pause. In high school, he had worked part-time at a State Farm office. His old boss told him he’d hire him full-time and help him get licensed, so Harden dropped out after his first year.

“At least I’ve only ended up with $10,000 worth of debt instead of $50,000 or $60,000,” said Harden, 23. “The lesson for me is, don’t go to big universities.”

His wife, Elizabeth Harden, graduated from Southern Crescent Technical College in Griffin, and they have paid off her loans. It will take them at least five more years to get out from under Alec’s student loan.

Meanwhile, Searcy spends her days working for commission fixing and selling cellphones at a kiosk in the Peachtree Mall and trying to make a dent in her loans.

At her mom’s urging, she’s already tried to go back to school once, completing another year before withdrawing again. If HOPE were fully funded, her debt would have been cut in half.

“My mom was like, ‘You need to get back to school,’” said Searcy, smiling. “She’s seen how hard it is out here to get a job without a degree, even little jobs.

“I’m hoping I can save up money and go back in 2018. I know I need a degree…and I want to make my mom proud.”

Correction: An earlier version of this article gave an incorrect percentage for the proceeds that a Georgia state senate bill would require the lottery to contribute to the HOPE program, and incorrectly stated that the estimated proceeds would go to HOPE in one year, instead of over three years. 

This story was produced by The Hechinger Report in a collaboration with The Atlanta Journal-Constitution. The Hechinger Report is a nonprofit, independent news website focused on inequality and innovation in education. Sign up for our newsletter.

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