States have traditionally provided funding for public colleges and universities based on a combination of the number of students enrolled and how much money they were allocated previously.
But, in the face of increasingly tight budgets and pressures to demonstrate their effectiveness to legislators, more and more states are tying at least some higher education funding to student outcomes.
As of 2015, 32 states have implemented a funding system that is based in part on students’ performance in at least some of their colleges. In such states, a portion of state funding is based on metrics such as the number of completed courses or the number of graduates.
Research shows that performance-based funding (PBF) has not moved the needle on degree completions in any substantial way. Our research focuses on the unintended consequences of such funding policies – whether colleges have responded to funding incentives in ways that could hurt disadvantaged students.
We find evidence that these systems may be reducing access for low-income students at public colleges.
Just a popular political strategy?
What is performance-based funding (PBF)? And does it improve college completion rates?
Performance funding, the idea of tying funding to outcomes instead of enrollment, was first adopted in Tennessee in 1979. It spread across the country in waves in the 1990s and 2000s, with some states dropping and adding programs as state budget conditions and political winds changed. In this decade, several states have implemented systems tying most or all of state funding to outcomes.
By basing funding on outcomes such as course completions and the number of degrees awarded, PBF has become a politically popular strategy to improve student outcomes. It has received strong support from the Bill and Melinda Gates and Lumina Foundations – two big players in the higher education landscape.
However, the best available evidence suggests that PBF systems generally do not move the needle on degree completions in any substantial way.
For example, a study of Washington state’s PBF program by Nick Hillman of Wisconsin, David Tandberg of Florida State and Alisa Hicklin Fryar of University of Oklahoma showed no effects on associate degree completion at two-year colleges. The study found positive effects on certificates in technical fields that took less time to complete, but those were the ones that were not as valuable in the labor market.
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