Blog: The Educated Reporter

Performance-Based Funding: Do the Numbers Add Up?

State governments increasingly are tying money for higher-education institutions to performance-based outcomes such as graduation rates, rather than just student enrollment. Twenty-five states now have some sort of performance-based model and four others are planning to follow. But there are still major questions about how schools respond to these models and what outcomes they have. Those issues were the focus of a panel discussion at EWA’s 67th National Seminar, held last month at Vanderbilt University in Nashville.

There’s no doubt that there are immediate financial effects,  said Kevin Dougherty, who is studying such policies through the Community College Research Center. Schools and state leaders are becoming more aware of how well they are meeting goals such as graduation and retention rates, and schools know that when they fail, it will have an impact on their bottom lines.

As a result, schools are updating their policies in what Dougherty described to the EWA audience as intermediate effects. Colleges and universities are bolstering programs for counseling, advising, orientation and developmental education. The goal is to provide a stronger guiding hand to help students succeed, which in turn can boost a school’s performance on metrics outlined by their state.

Less clear are the ultimate effects of these policies. There is some evidence of improved student outcomes in Tennessee and Ohio, Dougherty said, but it’s hard to pin success to performance-based funding when there are many other changes happening at the same time.

There could be unintended consequences, too: Schools might restrict admissions to recruit more students who are better-prepared for college, or they might weaken standards to appear more successful. As states craft their plans, they need to keep in mind that different types of schools draw different types of students, Dougherty said, and some might not be as prepared as others.

Unintended consequences can be particularly harmful to institutions that primarily serve minorities, said Tiffany Jones of the Southern Education Foundation. They often have more students that require developmental education, and the circumstances of these schools require careful consideration.

Jones urged reporters to talk to leaders of minority serving institutions as states design and unroll performance-based funding, to learn about the historical relationships between those schools and their states. Reporters should ask state leaders about how they develop their metrics and how they plan to avoid unintended negative consequences for some colleges. And there are still hard questions to be answered, like which institution should get credit for transfer students under state funding formulas.

Members of the panel said that some states add weighted rewards for schools when at-risk or minority students succeed, as a way to make sure schools don’t pull back on efforts to help them.

Martha Snyder has helped states as they create their plans, through her work with HCM Strategists. Part of that process looks not just at how performance-based funding works, but also at how historical models did or didn’t work, she said. It’s important to bring institutions to the table as state leaders set the metrics that will gauge their success and funding, she said. Graduation is important but it’s only one of many measures that states should consider. Other factors can include how much progress students make toward earning degrees or certificates, among other metrics.

Moving forward, Snyder said states still need to gain a better understanding about funding needs that schools will have to achieve to meet the goals laid out by their state. Plans should focus on rewarding those colleges who succeed and on breeding innovation to meet goals, not just to do more with less, she said.

Members of the panel had difficulty answering the question, “What works?” in these models. Dougherty said he was reluctant to answer because ideally policies should be tailored to meet the conditions their particular states and created through careful and deliberate work. Plus, it may be too soon to know what works, he said. “We may not be able to answer that for a good while,” he said.


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