Aware that a growing number of jobs require a college degree, more states are tying their funding levels for state colleges and universities to whether students complete courses and graduate. Sixteen states base at least some of their higher-education allocations on performance, and nine others are moving in that direction, according to Complete College America, a nonprofit group.
This fall, Ohio began linking 50 percent of its funding of four-year colleges to the number of students they graduate. Next year, 100 percent of state funding for two-year colleges will hinge on a set of performance measures, including course completion.
On the surface, the tough-love requirements make perfect sense. When students flounder, they waste both their own time and financial-aid dollars. When they drop out, they lose earning potential, and their states lose potential economic growth. The public money invested in their education goes down the drain.
The problem is, independent studies that try to isolate the effects of performance funding on outcomes, such as degree completion, have found little evidence that the programs actually work. A recent statistical analysis by researchers at Florida State University and the University of Wisconsin (Madison) examined data from 1990 to 2010, and it concluded that the existence of a performance funding program had, on average, no significant effect on students’ degree completion. In fact, after five years, states with performance funding actually experienced a decrease in associate-degree completion.
Two-year colleges would seem to be prime targets for performance formulas, because they often attract students at risk of dropping out—and, indeed, many who enroll fail to complete their degree. Four-year state universities serve higher numbers of affluent and white students who, statistics show, are more likely to graduate than the low-income, first-generation, and minority students who tend to be disproportionately represented at community colleges.
But many community colleges aren’t able to invest in the tools, such as advisers and tutoring programs, that can keep students on track to graduate. “They can’t reallocate resources in the way that a flush research university can,” says David Tandberg, an assistant professor at Florida State University and a coauthor of the analysis. Public research universities spend about three times as much per student as community colleges do and can draw on multiple revenue streams, from alumni donations to research grants.
Proponents of performance-based funding say states are getting savvier about using financial incentives to change the way colleges serve students. The policies that Tandberg and his colleagues reviewed reflected the efforts of 25 states, many of which adopted and then dropped—and in some cases later revived—performance-funding policies during the period. States most often offered bonuses to institutions on top of regular, enrollment-based appropriations.
Ohio started tying a portion of its base appropriations to performance funding in the late 1990s. From 2002 to 2009, rewards for specific successes—such as awarding more degrees, attracting research dollars, and providing job training—accounted for 8 to 10 percent of higher-education funding in the state. Ohio’s new program links more money to performance and offers a nuanced set of metrics. “If you’ve declared that you’re no longer funding enrollments and are only funding course and degree completions, that is much more likely to change campus activity,” says Richard Petrick, a former vice chancellor of the Ohio Board of Regents.
Yet the Ohio Association of Community Colleges worries that performance incentives will send some colleges into a death spiral in which poor initial performance means less funding, and less funding further diminishes a college’s ability to serve students. According to the association’s current models, a small college that has worked with a national nonprofit on performance-based mechanisms for years will likely see a 25 percent increase in funding next year. A large urban campus will likely see a 12.5 percent cut.
The association helped design the metrics, which are still being tweaked, for two-year schools. It will likely recommend that the state set aside additional money to help schools improve. The current structure has colleges fighting for a share of a fixed pot of money. “By nature, if you have a finite pot, there will always be winners and losers,” says Karen Rafinski, interim president of the association.
Critics say it’s not enough to presume that putting more money at stake will force colleges to do a better job educating their students. “That assumes that the fundamental obstacle to response is simply kind of an institutional inattention or lack of motivation. But a lot more could be involved,” says Kevin Dougherty, an associate professor of higher education and education policy at Columbia University’s Teachers College.
For ambitious performance-funding programs to work, states need to make sure colleges have the capacity to respond. Institutions that don’t know how, or can’t afford, to legitimately improve student outcomes could easily turn to quick fixes: lowering degree requirements, becoming more selective in their admissions, or pressuring faculty to give everyone a passing grade. The pursuit of more outcome-based money might indeed change campus activity, but it might also drive bigger unintended consequences.
Despite Ohio’s long-standing commitment to performance funding, today just 53 percent of students in state-funded four-year colleges and universities earn bachelor’s degrees in six years, below the 59 percent national average. For state-funded community colleges, the rate for two-year degree completion for first-time, full-time students—admittedly a minority of the student population—is 13 percent, also below the national average. In this case, the record of governments trying to affect behavior suggests that money, regardless of whether it’s spent or withheld, is rarely the only answer.
UPDATE: Richard Petrick notes that Ohio's old performance funding formula didn't explicitly reward colleges for increasing the number of baccalaureate or associates degrees. According to Ohio Board of Regents data, Ohio saw gains in what it did incentivize: decreasing time to degree for university students, increasing degree completion for at-risk university students, increasing third-party-funded research activity, increasing noncredit related job training, and increasing enrollment at community colleges. Tandberg's team didn't account for the differences between state formulas; it simply looked for a relationship between the existence of a performance-funding program and degree completion. Regardless of a state's stated goals, Tandberg says, it's hard to believe that policymakers wouldn't want more students to graduate.
This article appears in the December 7, 2013 edition of National Journal Magazine as Tough Love for Colleges.