Performance-Based College Funding Doesn't Work, Study Finds

Performance-based funding support for public universities not only fails to boost college completion rates but also reinforces existing disparities in those rates, a report from the Century Foundation argues.

The report, Why Performance-Based College Funding Doesn't Work (HTML, or 12 pages, PDF), found that while thirty-two states have adopted performance-based funding policies, research shows that such policies generally do not result in improved service delivery. Indeed, twelve studies highlighted in the report found no statistically significant improvement in graduation rates or the number of degrees and certificates awarded annually in states with performance-based funding, compared with those without such policies, while in some performance-based states degree productivity actually fell. Conversely, when provided with additional resources, colleges increased their degree-completion rates, even in the absence of explicit performance goals and financial incentives.

For performance-based funding to improve educational outcomes, the report argues, the incentives must be designed in ways that encourage low-performing institutions to improve, there must be a clear path to better results, and the changes must be sustainable — none of which currently holds true. Instead, when low-resourced institutions that are struggling to meet performance goals lose funding, they have less capacity to make educational improvements. What's more, the report argues, there is no single path to successfully graduating individual students, while the effects of pay-for-performance in other sectors tend to be limited to the short term, in part because performance data rarely are fed back into internal operations in ways that create long-term change.

Given that funding per student is one of the strongest predictors of college completion, the report further notes, performance-based funding tends to reproduce inequities in that it typically benefits high-resourced, high-performing universities able to charge high tuitions. Indeed, the studies examined by the report's author found that in some cases colleges responded to performance-based policies by enrolling fewer low-income students. A more effective model, the author concludes, would provide "need-based" funding to institutions serving the most underrepresented populations — low-income, working class, and racial/ethnic minority students — while supporting the professional development of educators at those institutions.

"Why Performance-Based College Funding Doesn't Work." Century Foundation Report 05/26/2016.