Performance funding isn't working, report finds

'From a policy perspective, it hasn't produced any big time wins yet'

Performance-based funding models have little positive effect on college graduation rates and foster inequality in public higher education, according to a new report from the Century Foundation

Following the recession in 2008, state legislatures increasingly relied on performance-based measures to allocate funding to public colleges and universities. Thirty-two states have a funding formula or policy that ties funding for public colleges and universities to performance measures such as course completion rates or percentages of low-income and minority graduates, according to the National Conference of State Legislatures (NCSL).

"There is a real concern that too many students are falling through the cracks," says Julie Bell, education program director for NCSL. "States have also had to struggle to keep up the pace of funding over the years with tight budgets, requirements to fund health care and prisons."

Some experts question whether performance based funding promotes the right behavior

The Century Foundation report argues that while linking appropriations to performance has allowed states to hold colleges accountable for student outcomes, performance-based models favor state flagships and other prosperous institutions at the expense of schools with the greatest financial need. The report also shows that universities in Indiana, Pennsylvania, and Tennessee have not fared particularly well in terms of graduation and retention rates under performance-based funding models.

"From a political perspective, performance-based funding is a winner. From a policy perspective, it hasn't produced any big time wins yet," says Thomas Harnisch, director of state relations and policy analysis at the American Association of State Colleges and Universities

Support under-resourced students without breaking the bank

Report author Nicholas Hillman, an assistant professor of education at the University of Wisconsin at Madison, says that instead of using performance-based funding models that give preference to affluent institutions, states should invest more resources in schools with the greatest financial need.

"If we truly want to make progress towards a completion agenda and improve educational outcomes, we have to make sure that we have every college on an equal playing field with an adequate amount of resources to perform," Hillman says."We've got it all backwards to tell colleges to perform first, without actually addressing their capacity constraints" (Douglas-Gabriel, "Grade Point," Washington Post, 5/26). 

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