SC higher ed agency needs $25M more to pay for scholarships already awarded

COLUMBIA — Miscalculations have left South Carolina’s higher education agency $25 million short of what it needs to pay colleges for state-sponsored scholarships awarded this school year.

It’s a flip from revelations of a $152 million surplus in scholarship money less than three years ago, also due to bad projections.

The state Commission on Higher Education, which oversees the scholarships’ dispersal, learned about the deficit this week, said Executive Director Jeff Perez.

The shortfall in lottery profits needed to fund scholarships through this summer came to light when colleges started invoicing the agency in April. It won’t impact students directly, as colleges have already credited the scholarships against tuition owed at the beginning of the fall and spring semesters.

But it leaves colleges waiting longer for the funds they’re owed. And it throws a wrench in House and Senate negotiations to finalize a state spending plan for the budget year beginning July 1.

It also calls into question the accuracy of projections made by the agency and included in the chambers’ spending plans for LIFE, Palmetto Fellows and SC HOPE scholarships next school year.

By law, if lottery profits can’t cover the scholarships, the balance must come from the state’s general fund — in other words, state tax collections.

“South Carolina students are using our scholarships like never before, but they’re actually using them more than anticipated,” Perez said.

What ultimately led to the faulty estimates is not yet known, but Perez said 4,000 more South Carolinians earned scholarships this year compared to last year.

Scholarship awards last peaked in 2021 at about $302 million, according to a 2023 report by the state Office of Inspector General.

For this school year, the Commission on Higher Education thought it would need that same amount — $301.9 million. It also had a balance of $2.6 million still in the bank just in case.

Perez said the increase in scholarships could be tied to enrollment.

Or it may be due to increased eligibility: In May 2024, the Legislature added education and accounting majors to the list of students eligible for additional scholarship dollars over and above the base scholarship amounts, which state fiscal analysts expected to increase scholarship demand by $8.2 million for the school year that just ended.

It could also be that more students kept their grades up from one semester to the next, meaning they’re holding on to scholarship dollars longer than in the past.

“Right now, we’re in analysis mode to try to identify what happened,” Perez said. “We need time to figure that out.”

In the meantime, Perez notified House and Senate budget writers this week. It will fall to them to fill the funding gap. That also means they’ll have to pull money from other budget priorities to pay for it.

Voters approved the state-run education lottery in 2000 as a way to fund college scholarships and make a degree affordable for South Carolina students, who can put it toward costs at the private or public college of their choice.

The state’s three merit-based scholarships — HOPE, LIFE and Palmetto Fellows — are awarded to eligible South Carolina students who go to college within the state. Awards range from $2,800 for students’ freshman year only to $10,000 yearly for students pursuing math and science degrees, as well as education and accounting.

Criteria include at least a 3.0 grade point average for HOPE and LIFE scholarships and 3.5 GPA for Palmetto Fellows.

The deficit marks a major contrast to issues the agency faced three years ago.

An audit publicly released in December 2023 showed leadership at the Commission on Higher Education allowed unspent lottery profits to pile up over six years, a mistake that ultimately led to the retirement of the agency’s previous director. Perez took the helm in summer 2024.

Inspector General Brian Lamkin called the funds “a missed opportunity.” The agency could have sent those dollars back to state coffers to pay for other needs, he told legislators.

The agency blamed a faulty algorithm that had predicted scholarship needs would continue to rise. Instead, scholarship totals reverted to tallies seen several years earlier. But the commission kept asking for money as if nothing had changed, leading to the surplus.

This is also not the first deficit the scholarship fund has experienced.

More than a decade ago, lottery profits fell short of funding eligible scholarships, requiring legislators to fill the gap with state tax collections.

In 2018, legislators even considered raising eligibility requirements to avoid an expected multimillion-dollar funding crisis amid climbing payouts. Growth hasn’t kept up with predictions since.

At the time of the surplus, Commission of Higher Education Chairman Wes Hayes encouraged legislators not to immediately spend it all elsewhere. The Rock Hill Republican and former longtime chairman of the Senate budget-writing committee’s K-12 panel indicated they may want a cushion to guard against another shortfall.

But in 2024, the Legislature spent $120 million of it on internship programs at Clemson University and the University of South Carolina, equipment for the state’s technical schools, K-12 school buses and materials, money for colleges with a high percentage of federal Pell Grant recipients, residency programs for newly graduated doctors and medical professionals, technology improvements for the lottery and bonuses for high-performing teachers.

After the surplus, the commission vowed it would fix the faulty calculations, which Perez said have been “dead on” the past two years.

Why it did not work this year remains to be seen.

“This is a challenge for us, but if it means more students are getting a chance to get a college education because of scholarships, I embrace that challenge,” Perez said.