We Should Rethink Performance-Based Funding

Higher education research has long demonstrated that increased state appropriations to public colleges and universities usually improve graduation rates. The reason is simple: Colleges and universities with more generous state support can keep tuition affordable and can invest in people and programs that improve learning and keep students on track to graduate.

More recently, researchers have found that higher state appropriations lead to “modest but meaningful” increases in the graduation rates of students from traditionally underrepresented backgrounds. That’s an encouraging finding for those who are concerned with the widening disparities in college outcomes—and who seek to ensure that all students, regardless of background, have equitable opportunities to get into and finish college.

But simply increasing state appropriations isn’t a lever large enough to drive the change our nation needs. According to Lumina Foundation’s latest data on college attainment, the number of American adults with a college degree continues to inch up. But that pace is far too slow. Just 54.3 percent of Americans between ages 25 and 64 hold a postsecondary credential.

By the start of the next decade, an estimated 72 percent of all jobs in this country will require workers who have some education or training beyond high school. Undergraduate enrollment in the nation’s colleges and universities has fallen by nearly 3 million students since 2010. Only 42.1 percent of those who enroll in a public university graduate within four years. Just 19.3 percent complete community college within two years.

Today, more than 40 million American adults have some college but no credential. This group is almost three times the size as the total population of current U.S. college undergraduates.

To make bolder progress toward degree attainment goals and produce the number of college graduates our economy and our democracy needs, we should rethink the intersection of higher education accountability and public funding. Historically, most states have funded their public college and university systems on the basis of enrollment, which demonstrates their commitment to student access.

But with growing political and economic pressure to improve college completion rates, state leaders understood they had to connect public investments in higher education to outcomes.

Most states have adopted performance-based funding models that award institutional funding based on specific student outcomes such as first-year retention, completion, transfer and career placement.

This model helped shift the conversation around higher education funding from a narrow focus on expanding access to a strategic focus on completion. But it didn’t go far enough: most performance-based models provide relatively few dollars to public institutions—accounting for less than 8 percent of public operating funds allocated on average. They also reward success after the fact instead of supporting the reforms required to be successful in the first place.

In addition, most states have set parallel college attainment goals that promise to produce enough college-credential holders to meet local and statewide economic needs. But postsecondary institutions do not always take these targets seriously because they are untethered from the appropriations process.

Late last year, we here at Complete College America put forward a new proposal that promises to reinvigorate the push for greater college attainment. Under a new model we call completion-goals funding, colleges would receive increased upfront funding to attract, retain and graduate a diverse population of students and improve college completion rates. Institutions will invest in best practices and proven success strategies that lead to more equitable outcomes. These include pushing full-time students to take 15 credit hours per semester instead of 12, providing corequisite support to help students pass the gateway English and math courses and ensuring that all students have clear and straightforward academic plans that connect directly to career goals. In return, institutions will be held accountable for meeting specific, measurable goals. Colleges that seek additional funding to support completion goals will be required to implement specific metrics to measure their progress. Those who don’t achieve their goals within an agreed-upon timeline will revert back to base-level funding for the following appropriations cycle.

What makes this model different is that it connects state funding directly to state targets for college attainment. This model takes attainment targets seriously: state appropriations would fund known needs, and institutional budgets would reflect attainment goals. Completion-goals funding models are designed to produce institutional budgets that represent stated commitments, translate strategic plans into action and provide frameworks for making sound decisions.

Thanks to visionary higher education leaders who have aligned their agendas with evidence-driven reforms, many states have significantly increased on-time graduation rates at the two-year colleges, open-access institutions and regional four-year universities that serve the vast majority of our nation’s college students. Adopting funding models that incorporated student success metrics was a positive step forward. But increasing two-year community college graduation rates to 20 percent—which many states would consider a success story—is hopelessly inadequate.

To advance beyond incremental improvements and reach the college attainment goals states have set for themselves, state higher education allocations and institutional budgets must be aligned and laser-focused on these targets. In today’s knowledge economy, helping more Americans earn credentials of value through education and training beyond high school is an educational, workforce and economic imperative. To build a postsecondary engine that generates true equality of opportunity, we need to do more than merely shift our orientation from student access to student success. States should allocate their higher education dollars to fund completion goals and give institutions the resources they need to build the policies and programs so more students can earn the college credentials they and our nation need.