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Performance pays in higher ed

Performance-based funding models have driven student success, but some leaders have concerns
University Business, June 2017
  • ECONOMIC DRIVER—Michigan’s formula doesn’t give institutions like Wayne State University much credit for medical schools and other graduate programs.
  • 24/7 SUPPORT—Pensacola State University created a virtual tutoring program with performance funds.

Got strong graduation rates? Retention numbers? Post-graduation salaries? Then budget time may come with a big bonus.

More states now distribute larger portions of higher ed funding to public institutions based on outcomes such as these. One of the most well-established models in the nation, in Tennessee, lets institutions choose the “focus populations”—low-income or nontraditional students, etc.—by which they are measured.

Austin Peay State University has used performance-based funds to boost retention of first year-students and to build its graduate programs, among other initiatives.

“In some states, there are concerns that universities will change what’s important to them to try to game the formula,” says Alisa White, president of Austin Peay. “Here, if we have nontraditional or adult students and we do really well in those populations, our success for those students counts more than our success with traditional students.”

More than 30 states have implemented outcome- or performance-based models, and state leaders continue to adjust their models.

Ohio, for example, bases 100 percent of community college funding on performance measures; Illinois ties .05 percent to its higher ed funding formula. Meanwhile, legislatures in several others state are working to introduce the funding mechanism for the first time.

Critics say performance- and outcomes-based funding drives colleges and universities to become more selective, and adjust admissions to take better-prepared students who have a greater likelihood of succeeding and graduating.

“One of the reasons President Obama’s initial college scoring mechanism didn’t work is because they realized that the exact students they were hoping to help would’ve been disadvantaged,” says M. Roy Wilson, president of Wayne State University in Detroit.

“Obviously that’s not the kind of behavior you want to incent, because you want to be able to take a broad spectrum of your population and raise them all up.”

Campus leaders and higher education experts say the most effective models recognize differences in the missions of research universities, regional schools and community colleges.

And while concerns persist, some colleges and universities have thrived under these systems, using the funding to improve performance in the very areas measured by the formulas.

‘Mission creep’ and other misgivings

There’s some concern, and evidence, that schools in performance-based funding states have simply adjusted recruitment efforts toward students who appear more likely to succeed.

This practice could reduce access for less-prepared students, says Thomas L. Harnisch, director of state relations and policy analysis at the American Association of State Colleges and Universities.

“Mission creep is definitely a concern—universities may not market themselves in some communities as aggressively as they had before. It undercuts the whole purpose of the programs. The purpose is not to change your inputs but to change your outcomes,” he says.

Another concern: Top-tier research universities and well-resourced state flagships already boast strong outcomes, and may benefit disproportionately from performance funding. But regional universities that prioritize access—where the most substantial progress will be made in producing more graduates—are more in need of funding.

There’s a paradox, Harnisch says. “You’re calling on institutions to improve while at the same time pulling away funds that could help achieve those outcomes.”

That’s why the best models take underserved populations into account, says higher ed researcher Anna Cielinski, senior policy analyst with the Center for Law and Social Policy, a national anti-poverty organization. Without proper safeguards, these models can lead to open-access institutions reducing access, increasing selectivity or cutting budgets.

Indiana, for example, geared its formula toward the goal of 60 percent of residents holding a postsecondary credential. Considerable funding weight is placed on at-risk students’ degree completion. And Tennessee recently increased the weight it places on low-income student completion.

Stimulus for success

Performance-based funding models can be an opportunity for colleges to demonstrate their individual strengths.

Leaders at each of the 16 two-year schools in the Wisconsin Technical College System can choose seven out of 10 performance criteria that will form the basis of their outcomes funding, which encompasses 30 percent of the total budget.

Criteria include job placement, dual-enrollment programs, and degrees and credentials awarded in high-demand fields. The formula, which may serve as inspiration for the funding process being developing for four-year schools in the state, doesn’t penalize a college for a single bad year. Three years’ worth of data gets judged.

“The response has been very positive because the college presidents have been involved every step of the way,” says Jim Zylstra, the Wisconsin Technical College System executive vice president who oversaw the implementation of outcomes-based funding. “The colleges can really work to their strengths, and we’ve seen good results.”

For instance, dual enrollment of high school students has increased by 27 percent at the technical colleges, and that number should grow again during the 2017-18 school year. So far, about 30,000 high school students earned 120,000 college credits they didn’t have to pay for.

The 3-year-old formula does not consider overall graduation rates. “That’s not why students are here,” Zylstra says. “Some are there to create pathways to help them reach higher credentials and a lot of students are there to brush up on skills.”

New funding, new programs

In 2015, Florida based $200 million in performance funding on post-graduation employment, salaries earned, Pell Grants and other factors. Pensacola State College, an open-access institution, used its share of the funds to launch a real-time virtual tutoring program that operates 24 hours a day, seven days a week.

The service, which connects on-campus and remote students with a faculty member, has sparked a “dramatic increase” in student success rates, President Ed Meadows says.

The school has also opened an advising center where first-time college students are required to create guided pathways that will lead to a credential or degree in the shortest amount of time.

Since the formula was introduced, retention of first-time students at Pensacola State has risen 10 percentage points, to 80 percent. And graduation rates are nearing 40 percent, compared to a national average of 19 percent for two-year institutions.

Performance funding has helped boost access for students entering Central State University in Ohio—a state in the process of adjusting a formula that in 2014 based 50 percent of funding on degree attainment and 30 percent on course completion.

Since fewer first-year students get help from their families in paying for college, officials have used performance funding to boost financial literacy. Related topics now account for about half the instruction in a required freshman seminar class, says President Cynthia Jackson-Hammond.

Improvements for the underserved?

At Wayne State, President Wilson still has concerns that university leaders didn’t have a lot of involvement when Michigan’s formula was developed in 2012 and 2013. The process was driven by the business community and the legislature, and initially didn’t account for Pell Grants, though they were later included.

Still, institutions like his—research universities that also place a high priority on access for underserved students—remain at a disadvantage because the formula emphasizes undergraduate performance.

“If you’re a research university and have a lot graduate school and medical students, you really don’t get much credit for that,” Wilson says, adding that his university is still below its funding level after major statewide cuts in 2011. “Most states value research as an economic driver.”

On the access side, Michigan’s formula uses benchmarks that compare Wayne State’s performance to major research universities that have high six-year graduation rates, such as the University of Michigan and Michigan State University.

“We’re also a university of opportunity and access,” Wilson says. “We’re not going to be able to compare with those universities on some of the metrics because we take a broader group of students.”


Matt Zalaznick is senior associate editor of UB.

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