As mentioned by other users, the state government is only providing college scholarships and not cash prizes. So it will be wrong to say that the money is being misspent. Even during normal times, scholarships are given, and this time they are just rebranding it as a lottery. I don't see anything condemnable in this. There is no fund diversion, and no coercion is being used. And many of the other states (including Democrat ruled ones) have started similar schemes for those who are willing to get a dose of the vaccine.
On the one hand, this makes the situation more adequate, but on the other hand, such a prize for those who dreamed of education and saved money for it will not differ in any way from the usual cash prize. And I do not understand references to other states - in my opinion, this decision is wrong, regardless of who and where made it.