Performance Pays: Performance-Based State Funding Models for Public Colleges and Universities Have Driven Student Success, but Some Leaders See Unintended Consequences

By Zalaznick, Matt | University Business, June 2017 | Go to article overview

Performance Pays: Performance-Based State Funding Models for Public Colleges and Universities Have Driven Student Success, but Some Leaders See Unintended Consequences


Zalaznick, Matt, University Business


Got strong graduation rates? Retention numbers? Post-graduation salaries? Then budget time may come with a big bonus.

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More states now distribute larger portions of higher ed funding to public institutions based on outcomes such as these. One of the most well-established models in the nation, in Tennessee, lets institutions choose the "focus populations"--low-income or nontraditional students, etc.--by which they are measured.

Austin Peay State University has used performance-based funds to boost retention of first year-students and to build its graduate programs, among other initiatives.

"In some states, there are concerns that universities will change what's important to them to try to game the formula," says Alisa White, president of Austin Peay. "Here, if we have nontraditional or adult students and we do really well in those populations, our success for those students counts more than our success with traditional students."

More than 30 states have implemented outcome- or performance-based models, and state leaders continue to adjust their models. Ohio, for example, bases 100 percent of community college funding on performance measures; Illinois ties .05 percent to its higher ed funding formula. Meanwhile, legislatures in several others state are working to introduce the funding mechanism for the first time.

Critics say performance- and outcomes-based funding drives colleges and universities to become more selective, and adjust admissions to take better-prepared students who have a greater likelihood of succeeding and graduating. "One of the reasons President Obama's initial college scoring mechanism didn't work is because they realized that the exact students they were hoping to help would've been disadvantaged," says M. Roy Wilson, president of Wayne State University in Detroit. "Obviously that's not the kind of behavior you want to in-cent, because you want to be able to take a broad spectrum of your population and raise them all up."

Campus leaders and higher education experts say the most effective models recognize differences in the missions of research universities, regional schools and community colleges. And while concerns persist, some colleges and universities have thrived under these systems, using the funding to improve performance in the very areas measured by the formulas.

'Mission creep' and other misgivings

There's some concern, and evidence, that schools in performance-based funding states have simply adjusted recruitment efforts toward students who appear more likely to succeed. This practice could reduce access for less-prepared students, says Thomas L. Harnisch, director of state relations and policy analysis at the American Association of State Colleges and Universities. "Mission creep is definitely a concern--universities may not market themselves in some communities as aggressively as they had before. It undercuts the whole purpose of the programs. The purpose is not to change your inputs but to change your outcomes," he says.

Another concern: Top-tier research universities and well-resourced state flagships already boast strong outcomes, and may benefit disproportionately from performance funding. But regional universities that prioritize access--where the most substantial progress will be made in producing more graduates--are more in need of funding. There's a paradox, Harnisch says. "You're calling on institutions to improve while at the same time pulling away funds that could help achieve those outcomes."

That's why the best models take underserved populations into account, says higher ed researcher Anna Cielinski, senior policy analyst with the Center for Law and Social Policy, a national anti-poverty organization. Without proper safeguards, these models can lead to open-access institutions reducing access, increasing selectivity or cutting budgets. …

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