States Continue to Throw Support Behind Performance-Based Funding

By Joelle Fredman, NASFAA Staff Reporter

States have been instituting performance-based funding (PBF) models and tying funds for their universities and colleges to student outcomes since 1979. However, over the years, experts have become concerned that PBF is causing schools to prioritize certificates to meet completion targets and leading minority-serving institutions to lose funding — which a majority of states have responded to by instituting equity metrics to reward schools graduating at-risk students.  

Researchers found that in fiscal year (FY) 2020, 29 states have PBF models in place, and two additional states have drafted PBF policies that are not yet enacted. In almost all of those states (20), PBF models have been applied to both four-year and two-year public institutions, and seven states tie funding to students outcomes only at community colleges.

The number of states with PBF models tends to fluctuate, however, professor and higher education researcher Robert Kelchen said. In fact, while 21 states in 2001 had PBF models in place, that figure dropped to 12 by 2013, according to New America.

“It’s ebbing and flowing in the last several years,” Kelchen, an associate professor of higher education at Seton Hall University, told NASFAA in an interview. “A lot of states have gone away from their PBF policies, while some prominent states have adopted PBF for the first time in many years.”

Kelchen said that’s in part due to political changes within state legislatures, which influences how all funding for higher education is allocated. He explained that “figuring out how much money colleges get is a very political decision, and figuring out how to divide the higher education funding is very contentious.”

“The models are attractive for states because then politicians can go to the public and say that they are only giving money to colleges if the college can produce good outcomes,” Kelchen said. “If a college is doing a good job, they get paid for doing a good job. Frankly, it’s the only way states will give more money to colleges.”

How much states dip into their higher education budgets to support their PBF models varies significantly — though according to Kelchen it generally remains a small portion of the budget. While Arkansas allocates 3% of its overall higher education funding to PBF, Ohio stands out for using 100% of its funds for PBF. As an alternative model, Hawaii allocates a set amount of funds from its higher education budget for its two-year institutions for PBF, as opposed to a percentage.

States also differ in what performance metrics they use for their PBF models, though almost all consider degree completion, the researchers found. Many states also take into account transfer rates to four-year institutions, on-time graduation rates, and credit accumulation. 

In addition, a majority of states have also adopted equity metrics into their PBF policies to ensure they don’t lead to institutions closing their doors to riskier students in fear of losing funding — something for which PBF models have been criticized. In 2017, two reports found some states’ programs unintentionally incentivized colleges to prioritize short-term certificates over associate degrees to increase completion rates while reducing expenditures, and that minority-serving institutions with seemingly poorer graduation rates were struggling to secure funding. 

The researchers focusing on PBF models in FY 2020 found that almost half of the 29 states with PBF models instituted equity metrics that specifically address race, and many states give extra funds to institutions that graduate adult students and veterans. They also found many states include multiple measures to address equity in their formulas, such as Ohio, which awards more funds to schools supporting African-American, Native American, and Hispanic students, as well as first-generation students and those with low testing scores in high school.

“It seems like these metrics are encouraging colleges not just to serve students generally ready to succeed, like the last wave [of states with PBF models],” Kelchen said. “They seem to stop at least some of these systems from doing harm.”

While Kelchen said he predicts states will continue to cycle in and out of PBF models, a renewed focus on equity metrics is critical because PBF is not a trend likely to go away anytime soon.

“The general concept of PBF is definitely here to stay,” he said.


Publication Date: 3/11/2020

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