Published on 2014/05/05

Performance-Based Funding and Student-Centered Higher Education

Performance-Based Funding and Student-Centered Higher Education
Performance-based funding models ensure public colleges and universities are still able to operate, but reward the institutions that support student success rather than those that pull in the most enrollees.

The following Q&A is with Sean Tierney, a strategy associate at Lumina Foundation. Tierney, who has experience with Maryland’s and Tennessee’s Higher Education Commissions, spoke at this year’s SxSW EDU conference on the capacity for outcomes-based funding to boost performance for higher education institutions. In this interview, Tierney sheds light on the benefits of the performance-based funding model and explores one of its most significant critiques; that such a model would punish institutions that serve mainly non-traditional and high-risk students.

1. Why is the performance-based funding model so promising for the advancement of public higher education?

Traditionally, most colleges and universities are funded based on how well they perform on a single metric: enrollment. This encourages higher education to enroll students and keep them enrolled, but not necessarily to help them earn degrees, certificates or other meaningful credentials. Under enrollment-based funding, institutions do not receive additional funding if their students continue through more-expensive-to-offer, upper-level coursework. In fact, they can even lose some funding if their students earn credentials or graduate and leave behind empty seats. This perverse incentive poses the greatest harm to students from low-income families who most need support and can least afford to enroll without later graduating.

Outcomes-based models fund institutions on how well they perform on metrics related to how well they graduate students from all backgrounds. These performance metrics create financial incentives for colleges and universities to improve student supports and to help students, particularly racial minorities and students from low-income families, graduate with high-quality credentials. Outcomes-based funding encourages higher education institutions to shift from prioritizing college access to prioritizing both access and student outcomes.

2. What are the metrics that come into play when constructing a performance-based funding model?

Student progression, such as reaching certain credit milestones, and completion, such as courses taken or certificates and degrees awarded, are common among outcomes-based funding formulas. But there is significant variety across the states when it comes to the use of input, process and other outcomes metrics. These could include incentives to serve underserved students, on-time completion, successful transfers, etc. The metrics chosen should reflect state goals and objectives and should support institutional missions. For example, community colleges might be funded in part based on how effective their developmental education courses are.

3. How is funding for public institutions impacted by the movement toward outcomes-based funding?

Enrollment-based funding rewards institutions for numbers of students enrolled, regardless of outcomes. Over time, this has resulted in achievement gaps and inequitable results for racial minorities, first-generation students and students from low-income families.

Outcomes-based funding takes a share of overall funding and delivers a policy message about the importance of student completion that’s tied to state goals and objectives for increasing educational attainment. Concerns about educational quality and unintended consequences, such as institutions becoming increasingly selective in admissions, must be taken seriously and mitigated. Strong evidence exists that outcomes-based funding prompts serious discussions on campuses about how to better serve students in ways that increase year-over-year graduate totals, and early evidence suggests these totals are increasing. However, deeper quantitative analyses are needed as the best-designed systems mature during the next few years. It’s worth noting that, in most states, outcomes-based funding represents only a portion of public funding, and that much public money continues to support enrollments. In states where this is not true, tuition and fees make up substantial, growing shares of total institutional revenue and are themselves incentives to increase enrollment and access.

4. What impact will outcomes-based funding have on institutions that largely serve non-traditional and first-generation students?

Well-designed outcomes-based models should create incentives for colleges and universities to care more about whether students graduate and do so on time. These financial incentives, over and above the normal incentive for increasing the numbers of graduates, should enable institutions to provide additional supports to non-traditional, first-generation and other students who have been poorly served in the past. Many outcomes-based models even provide extra funds for serving such students.

Enrollment-based funding places no emphasis on these students, and the results in terms of unfair educational outcomes run counter to the moral and economic imperatives to provide real opportunity for all students to achieve social mobility, prepare for further education and employment and be active in their communities.

5. Considering the position on performance metrics of some community college leaders, as well as leaders of institutions that largely serve non-traditional students — especially when it comes to graduation and retention rates — is there a need for these definitions to be modified to better fit today’s postsecondary reality?

A well-designed outcomes-based funding model should reflect differences in institutional capacity and student composition. No metric or set of metrics is perfect, but a well-designed model can help wisely allocate scarce resources. The combined metrics should reflect the full student composition and student needs, even if no one metric does. For example, the use of graduation rates without considering whether more students are completing degrees and other credentials each year would be inadequate. Moreover, institutions can “retain” students for quite some time, but the real measure should be whether these students are making steady progress, regardless of whether they are part-time or full-time, and doing so at rates that make them likely to complete. The best outcomes-based funding systems take these factors into account.

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Key Takeaways

  • Performance-based funding pushes institutions to focus on retention, completion and success among their students.
  • For most states, performance-based funding only makes up a portion of total public funding for higher education institutions.
  • Well-designed performance-based funding models will account for the diversity of prospective students in the higher education ecosystem.

Readers Comments

Eric Csergo 2014/05/05 at 1:34 pm

I agree with Tierney about the potential for performance-based funding to address underserved groups, as this model forces institutions to work to help all students succeed. I think, as a society, we’re starting to see the danger in leaving institutions entirely unchecked. If they receive public funding, there should be some type of accountability to ensure the funds are being used to produce good outcomes (e.g. educated citizens who are able to find good jobs). Performance-based funding is an important first step.

Vic Thomas 2014/05/05 at 5:12 pm

The one reservation I have about a performance-based funding model is that it might cause institutions to accept only the best students who need the least amount of services/supports in an effort to receive the highest level of funding. Students who might demonstrate great potential but who need additional time and support to complete a credential might be considered too “high risk” for institutions — who are looking at their operating needs for the next year — to accept.

    nontrad 2014/05/06 at 2:37 pm

    I agree completely. Why would a school take a risk on a non-traditional student when it will almost for sure impact their rankings?

    Performance-based funding will put adult, parent, transfer and high-risk students in a situation where they can only attend private and for-profit schools because the public schools will be completely focused on the students that will graduate on time with high grades and low debt.

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