The Center for American Progress just released a report titled, “Performance-Based Funding of Higher Education,” which investigates the “best practices” in six different states’ performance-based funding action plans.
While most states use enrollment-based schemes to distribute funding to higher education institutions, CAP claims that allocating funds solely on the basis of enrollment “is a poor predictor of overall institutional performance”. The report states that, “Ongoing budget cuts, combined with stagnating graduation rates and a rising national demand for highly educated workers, make it increasingly important for states to invest in completion too.” Thus the report motivates states to dole out funding based on both enrollment and performance to incentivize state prioritization of college access and college completion.
The report recognizes that early performance-based funding models were “plagued by a number of fatal design flaws”. Learning from the mistakes of previously unsuccessful models, the report discussed “performance-based funding 2.0”- an approach to performance-based funding which focuses on rewarding progress over completion, acknowledges the unique needs of different higher education institutions, and works to partition off larger percentages of base funding to actualize change.
Looking to six states who currently utilize some form of a performance-based funding action plan, the report shares stories of successful approaches to “performance-based funding 2.0”. For example, “Ohio’s funding formulas reward the achievements of 'at-risk' students” to encourage rather than penalize schools for enrolling theses students who “often face greater barriers to completion”. Meanwhile, readers learn that since 2000, when a performance-based approach was implemented, Pennsylvania public colleges have witnessed a “10% increase in overall graduation rates and a 15% increase in retention rates for Hispanic students”. Indiana tallies enrollment levels at the end of the semester to emphasize course completion, and Tennessee has gone as far as allocating 80% of state higher education funding on the basis of performance. Accounts from Washington and Louisiana are also documented in the report.
Through their extensive research on past and existing performance-based funding schemes, PAC reported the following “best practices”:
- Actively involve key stakeholders in the model’s design
- Ensure enough money is apportioned for performance to create strong incentives
- Recognize institutional differences with separate funding formulas
- Integrate all metrics and provisions into the state formula
- Use indicators that emphasize progress
- Incorporate stop-loss provisions that prevent institutions from losing more than a certain level of funding each year
- Gradually phase in new measures
- Subject the system to frequent evaluation
Recommendations from the report included: suggesting that the U.S. Department of Education conduct a more exhaustive study of the costs and benefits of “performance-based funding 2.0”, developing pilot projects in states without performance-based funding measures, and helping policy-makers move forward to establish a federal role in creating higher education funding schemes.
The report concluded with this compelling statement:
“As the national conversation on higher education shifts toward completion, it must be accompanied by equally significant changes in institutional behavior.”