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You get what you pay for, the saying goes. A growing number of states are linking higher education dollars to student success, not just enrollment.

Performance funding is being adopted or strengthened in a majority of U.S. states, says Jamie Merisotis, CEO of Lumina Foundation for Education, which is funding research and grants to states developing new funding models.

The Obama administration is encouraging states to reward colleges and universities for graduating greater numbers of students and preparing them for high-demand jobs.

Paying for performance isn’t a new idea: Twenty-six states adopted performance funding—usually in the form of small bonuses—between 1979 and 2007, according to the American Association of State Colleges and Universities. Half of those states, though, cut the bonuses when state budgets tightened.
Now, states are moving to Performance Funding 2.0. Some states are increasing the dollars. A few—Indiana, Ohio, and Tennessee—are basing higher-education funding primarily on performance measures, not enrollment.
Does performance funding really pay off? There’s no “firm evidence that performance funding significantly increases rates of remedial completion, retention, and graduation,” concludes a study by Kevin Dougherty and Vikash Reddy, researchers at the Community College Research Center, based at Columbia University’s Teachers College.
“There’s a possibility it’s changed outcomes,” but it’s difficult to exclude other factors, says Dougherty. As for PF 2.0, it’s so new there’s no data.
“I’m not sure prior experiments put enough resources on the table” to make a difference, says Lumina’s Merisotis.
“The idea that we can’t measure learning outcomes is increasingly incorrect,” he says. “Higher education will be measured by outcomes for students—learning outcomes, critical thinking, can they get a job and make a living wage?”
Encouraged by Lumina, PF 2.0 plans often reward “persistence”—evidence of students making good progress—as well as degrees awarded, especially at the community college level.
For example, Indiana’s new formula for community colleges looks at the number of students who reach 15, 30, and 45 credit hours and the number who successfully complete remedial courses.
Ohio and Washington also reward community colleges for students who hit “success points,” such as passing gateway math courses, on their way to degrees or to transferring.
Florida’s community colleges get more funding for placing students in jobs that pay $10 an hour and up and for helping students pass licensure exams.
Many states give points for educating disadvantaged students. Tennessee colleges get a 40 percent bonus for credit and degree completion by low-income and adult students.
Performance funding raises college administrators’ awareness of state priorities and their own college’s performance, CCRC research found.
Often, community colleges put more money into tutoring and career counseling, but there are more creative approaches.
Florida’s Valencia College released faculty to work in industry in hopes of making vocational coursework more relevant and increasing job-placement rates.
Indian River State College, also in Florida, monitored the rates at which students dropped courses and encouraged faculty with high course-withdrawal rates to work with more successful colleagues to increase retention.
Community colleges in Washington state eliminated fees and decreased credit requirements to help students complete short-term occupational certificates.
Many academics are wary of performance funding, fearing instructors will be told to pass students along, even if they haven’t earned passing grades, to keep the money flowing.
That’s a real concern, says CCRC’s Dougherty. “Some faculty members feel under pressure to be careful about giving out low grades,” lest students get discouraged and quit.
“There’s a lot of pressure to retain every single student no matter what it takes,” said a Florida community college professor interviewed for a study. “We have to report every conference we’ve had, the outcome, if the student wasn’t retained, why, how many efforts were made.”
In addition, there’s a risk that colleges will narrow their missions to boost performance points.
Some Florida community colleges cut programs that trained students for low-wage jobs, such as childcare provider and nurse assistant, because job placements below $10 an hour don’t earn them performance points.
One college closed its Center for Disabilities because its completion and job-placement rates didn’t justify the cost.
It’s not easy to design a strong PF 2.0 system, Dougherty says. “What’s a valid job placement? How do you measure that? It will take a while to work out good measures.”

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