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RALEIGH — A scholarship program designed to allow low-income students to graduate from college debt-free will be phased out as part of the cuts made in this year’s budget.

Gov. Bev Perdue Friday signed the $19 billion budget lawmakers approved earlier this week.

The measure raises $1 billion in new taxes and cuts programs throughout the budget to deal with what House and Senate leaders described as a $4.5 billion shortfall.

The $16.2 million EARN Scholarship program was among those cuts.

Created in 2007, the scholarships pay up to $4,000 per year to students whose families are at 200 percent of the poverty level or below.

“They’re hitting the neediest students,” said Deborah Tollefson, director of financial aid at UNCG.

Students who received financial aid award letters in the spring will get their fall allotment — up to $2,000 — under the EARN program. They will have to find other money to replace the scholarships for the spring semester.

“To lose those funds in the current year is really tough,” Tollefson said. “Most of the UNC system schools don’t have the kind of resources to replace them.”

Most students, she said, will end up taking out loans to cover the cost.

No EARN scholarships are due to be issued for the school year starting in the fall of 2010.

For the coming school year, UNCG had granted EARN scholarships to 524 students. N.C. A&T expects to have 731 EARN recipients on campus this fall but could add to that total as financial aid scholarships are processed, according to a spokeswoman.

The EARN — Education Access Rewards North Carolina — program was created at the behest of former Gov. Mike Easley.

During the fall campaign, Perdue had proposed expanding the EARN program to students whose families made $63,600 per year, 300 percent of the poverty level for a family of four. She, too, championed the notion of a debt-free college education.

But the sour economy forced lawmakers to trim programs across every part of state government. And as the youngest of the state’s financial aid programs, EARN scholarships were among the first targeted by budget writers.

“It’s just a function of the money,” said Rep. Hugh Holliman, a Lexington Democrat and the House majority leader.“I don’t think it’s a bad idea.”

The scholarships functioned as replacements for loans, said Steve Brooks, executive director of the State Education Assistance Authority, a state agency that helps students find ways to pay for college.

In most cases, he said, students will be offered loans to replace their scholarships.

“Over all, need-based financial aid fared well in the budget,” he said. A separate UNC need-based aid program, funding for N.C. Education Lottery scholarships and a community college grant program all got funding boosts, he said.

Some EARN students may be able to avoid taking on loans by tapping into other scholarships, if they can find them.

However, most financial aid is awarded midspring, Brooks said.

“It is late in the game to do that. I don’t know how successful they’ll be,” he said.

Contact Mark Binker at (919) 832-5549 or mark.binker@news-record.com.