The Case for Performance-Based Funding in Higher Ed

The following position paper was published by Partners for College Affordability and Public Trust, a sponsor of the Bacon’s Rebellion blog.

ISSUE: Performance-based (also known as outcomes-based) Funding for Virginia’s Public Colleges and Universities.

PROBLEM:  Until a little over a decade ago, nearly all state funding for higher education was based on enrollment. Regardless of any outcome other than access, colleges and universities were funded simply on the number of students who attended courses, often measured mid-course, creating no institutional incentives or accountability for course completion or any other indicators of student success. 

OPPORTUNITY: Performance-based funding, also referred to as outcomes-based funding, is the growing concept that state funding for higher education should be connected to student success, rather than just course enrollment.  While the definition of performance-based funding can vary, there are currently at least 26 states implementing performance-based funding. There are also at least eight more states currently in transition to performance-based funding and several others in formal discussion around the concept. By connecting state funds to outcomes, institutions are not only financially incentivized to increase student success, but are also held publicly accountable to their peer institutions on common metrics.

SOLUTION: Performance-based funding formulas vary from state to state.  Typically states create separate formulas for community colleges and universities. Some formulas simply focus on shifting from only measuring seat-time enrollment to the number of students who complete a course with a passing grade, while others focus on more complicated and granular metrics of student success. To ensure incentives do not flow only to highly selective institutions, states weight metrics for at risk students (e.g., low-income and adult students). Additionally, several have or allow different metrics based on institutional missions. States also tend to create policies that limit risk and volatility for institutions, including having a guaranteed operational subsidy, only using new funds for performance-based funding, and/ or measuring outcomes on three- year averages.

Examples of leading states allocating nearly all their higher education funds on the basis of performance include:

Ohio: They have shifted to nearly 100% performance-based funding, with many of the metrics weighted based on at-risk students as well as specific program costs.

  • Universities: 50% of funding is based on number of degrees awarded, 30% is based on course completions, and 20% for doctoral and research set asides.
  • Community colleges; 50% of funding is based on course completions, 25% based on success points (includes achieving certain credit milestones and completing developmental courses and enrolling in college-level courses), and 25% based on completion (including associate degrees, transfer, and certificates).

Tennessee: Nearly all funds are awarded based on outcomes. Community colleges and universities have different success outcomes measured on a three-year average with weights added for adults and/or low-income students. Community college metrics include students accumulating 12, 24, and 36 credit hours, dual enrollments, job placements, degrees and certificates. University outcome metrics include students accumulating 30, 60, and 90 credit hours, degrees, research, and graduation rates, and are further weighted to align with institutional missions.

(This article first ran in Bacons Rebellion on January 19, 2018.)

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About Jim Bacon

James A. Bacon is the author of “Boomergeddon” and publishes the Bacon’s Rebellion blog at www. Baconsrebellion.com.
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