Report: Performance-Based Funding Cripples Minority-Serving Institutions

By Joelle Fredman, Communications Staff

Rewarding institutions with funding based on performance metrics such as graduation rates disproportionately harms minority-serving institutions (MSIs) and undermines their mission to educate historically underserved students, according to a new report.

Between 2005 and 2012, 21 states adopted performance-based funding (PBF) policies to incentivize schools to improve their degree completion rates. While every state implements its policies with slight variations, under these regulations the amount of funding schools receive is based on a set of output metrics, including the number of degrees awarded, job placement rates, and course completions.

The report, The Equity Implications of Paying for Performance in Higher Education, found that MSIs — institutions such as Historically Black Colleges and Universities (HBCUs) and Hispanic-Serving Institutions (HSIs) — lose a significant amount of funding from states that adopt these policies when compared to other institutions in the state.

Authors Nicholas Hillman, an associate professor of educational leadership and policy analysis at the University of Wisconsin-Madison, and Daniel Corral, a doctoral student at the Educational Leadership and Policy Analysis department, argued that MSIs suffer under these policies because they ignore their unique makeup of low-income students, which results in undesirable graduation metrics.

“Understanding graduation rates at MSIs calls for a need to understand the context in which they perform under,” the authors wrote. “When campuses have an uneven capacity to ‘perform’ in the first place, then their performance outcomes will surely be uneven and with significant financial consequences.”

The mission of MSIs is to educate historically underserved learners. Not only do MSIs enroll a quarter of all college students, but they also educate a disportionate number of economically disadvantaged students, according to the report. For example, while in 2011 HBCUs represented only 3 percent of all universities, they enrolled 16 percent of all African-American students. The same held true for HSIs — these schools represented 4 percent of all colleges, yet enrolled 42 percent of all Latino students.    

Hillman and Corral argued that when adjusted for inputs, MSIs often have similar graduation rates to non-MSI schools, though they lose on average more than $763 in funding per full-time equivalent (FTE) student under these policies.

The authors warned that because these policies threaten schools with loss of funding, MSIs may be forced to create stricter admissions standards and cut important student services to adjust to cuts — both of which undermine their mission to serve the most economically disadvantaged students. The authors also argue that this may cause predominantly white-serving institutions to limit their admission of students of color in fear of losing funding.

“There is nothing meritorious about having a high graduation rate because a college simply admitted students already likely to graduate. Yet performance funding regimes reward this exact behavior,” the authors wrote.

The authors argued that states should reconsider or overall abandon these PBF policies and instead focus efforts on ensuring that institutions have the means to best educate those learners who have been traditionally ignored in the higher education system.

“When performance outputs are imperfectly measured, tasks are complex, or organizations do not have the technical/human capacity to respond, pay-for-performance regimes are unlikely to generate large or sustained results,” the authors wrote. “By fundamentally changing how states finance higher education, MSIs, broad-access institutions, and colleges serving the nation’s working class students and students of color could be in a better position to perform.”


Publication Date: 12/20/2017

Daniel R | 12/24/2017 11:48:00 AM

The article makes it sound like segregated institutions are not producing better outcomes for URM populations. Given how desperate universities are for racial diversity, maybe further integration will be of mutual benefit.

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