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A quart and a pint jar filled with coins are side by side. Each jar has a mortar graduation cap on.

Photo illustration by Justin Morrison/Inside Higher Ed | designer491 and Balefire9/istock/Getty Images 

State funding mechanisms for higher education don’t hold influence over either enrollment or student outcomes at public institutions, a new peer-reviewed article suggests. Instead, the researchers say the amount of appropriations and the clarity and consistency of the allocation formulas are more likely to influence outcomes.

The study, published in the March edition of Educational Researcher, uses a novel database to offer a longitudinal examination of the relationships between different funding models and student enrollment, completion and post-graduation outcomes.

Robert Kelchen, lead author of the report and head of the educational leadership and policy studies department at the University of Tennessee at Knoxville, said that the majority of previous research has focused solely on enrollment- or performance-based funding, otherwise known as incentive models. This study, however, also includes traditional base-adjusted models, under which all institutions’ budgets go up or down by the same percentage, and hybrid models that fuse traditional and incentive-based formulas.

“There have been a few snapshots of what state funding models look like in a particular year, but those haven’t gone over time … They haven’t been as detailed,” Kelchen said. “The big advantage of this is seeing how states and systems change their funding in response to changes in student demographics, political party or just how much funding is available.”

The study was based on a sample of 576 four-year and 1,098 two-year institutions across all 50 states and included data from 2004 to 2020 by examining nearly 3,500 artifacts such state budgets, legislation and board meeting packets.

Dominique Baker, an associate professor of education and public policy at the University of Delaware and a co-author on the report, said including the other varieties of funding models only reinforced the fact that despite growing popularity, incentive and hybrid models provide little to none of the intended effects.

“We did see some relationship between incentives and enrollment at community colleges,” Baker said. “But we did not see a relationship between creating incentives for institutions to get funding and actual completions.”

‘Money Matters’

When asked what he would suggest to policymakers moving forward, Kelchen said there was an easy answer—“more money matters.”

There’s ample research, dating back more than a decade, suggesting that the variable most closely correlated with positive college outcomes is increased funding, he said. And more recent studies show the inverse is also true. When public universities face budget cuts they often reduce wraparound support spending and increase tuition, which hurts access and completion rates, especially for Black and Hispanic students.

However, Kelchen also acknowledged that additional dollars aren’t always available. In years with tight budgets, the decision of whether to boost funds for public higher education has become more and more political. This forces higher education officials in many states to fight an uphill battle as they lobby against other critical sectors for a piece of the pie.

That’s where the idea of simplifying the funding formula or providing greater consistency in funding models from year to year comes in. When the funding formula for education is complex and unpredictable, Kelchen said, it may disincentivize college and university leaders to invest in performance metrics.

“They may think, ‘Why would I put in all this effort to improve, just for the formula to change or for there to be no money available?’” Kelchen said. “But in other states, there’s a more predictable funding model and colleges know if we improve our outcomes or increase enrollment, we’ve got a decent shot of getting more money if the funds are available.”

“I think the clearest recommendation is to have a formula that you’re committing to for a period of time,” he added. “That way colleges can understand what they need to do to improve.”

No Model Method

Even then, Baker said, there’s no clear cut front-runner funding method she can suggest as a model for state leaders to stick with.

“Part of the challenge, quite frankly,” she said, is that “for a significant period of time, the way that states have been innovating is through these incentive models. So it becomes challenging for us to do research on new sources, techniques or ideas, in part, because incentive models have been so much of the focus.”

And despite the fact that research has repeatedly proven incentive models to be inequitable for regional and minority-serving institutions, Baker says “there can be very real political reasons that state leaders still want to have these policies.”

Kelchen noted that these may include seemingly positive motives such as gaining public trust in higher ed by establishing what at least appears to be a means of accountability. But Baker said lawmakers sometimes have other motives, such as targeting higher education for the private good or cutting funding to specific types of institutions.

James Ward, principal of policy and economic research at Ithaka S+R, a research group and consulting firm for higher education, said that just because current mechanisms don’t drive the intended outcomes doesn’t mean they have no influence at all.

“That’s an important thing to consider when we think about who’s enrolling in flagship universities compared to regional publics, MSIs or HBCUs,” Ward said. “These traditional funding models … really just have the ability to widen gaps that we already know exist among the haves and have-nots.”

Dustin Weeden, an associate vice president at the State Higher Education Executive Officers Association, said the study shows many higher education systems aren’t adequately funded regardless of the current model.

“The conversation that’s starting to happen in policy circles is that we need to talk more about the funding level, not just the mechanism for allocating the funding,” he said.

The report’s authors and outside experts hope this report will encourage policy makers to think more about the balance between base funding and incentives, as well as the details of what types of institutions and students need more assistance.

It’s critical to ask, “Who are you trying to reward? What types of students? What types of institutions?” Kelchen said. “If the state wants to encourage more nursing majors, will they provide more funding for students who take really expensive nursing programs?”

And although experts said there’s no one ideal model that has fully blossomed and put these kinds of questions into effect, they pointed to explorations of an innovative formula in Illinois, which could adjust appropriations to support particularly underserved students and institutions, as something to watch.

“There’s this idea that we are kind of funding for efficiency, as opposed to equity,” Ward said. “But if we thought more purposefully about leading with equity and funding for that, it might be more effective, but it also might end up being more efficient.”

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