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Negative Findings on Performance-Based Funding

December 18, 2017
 
 

Two newly released academic research papers identify negative consequences linked to states' performance-based funding formulas.

So far 35 states tie some funding for public colleges to metrics like graduation rates or degree production. And the Higher Education Act rewrite the GOP is advancing in the U.S. House of Representatives also includes aspects of performance funding by requiring that 25 percent of students at minority-serving institutions must complete in order for those colleges to be eligible for some federal funding streams.

Research findings about the effectiveness of state-based performance funding so far have been mixed. But the two new studies add to a growing amount of research that indicates the policies may not work or have unintended consequences, with some of those problems being linked to design flaws.

One paper found that more aggressive forms of state-based formulas can increase public colleges' production of short-term certificates while reducing the number of associate degrees students earn. Community College Review published the study, which was conducted by Amy Li, an assistant professor of higher education at the University of Northern Colorado, and Alec Kennedy, a doctoral student at the University of Washington.

"This study’s findings suggest that because awarding more short-term certificates is a relatively quick and cost-effective way to capture performance funds, colleges might be engaging in a path of least resistance by churning out short-term certificates and redirecting focus away from associate’s degrees," the researchers conclude, "which is concerning given that short-term certificates generally offer limited labor market benefits compared to medium-term certificates and associate’s degrees. Our results also underscore the importance of policy designs in explaining differential impacts on credential completion."

Also recently published, by American Behavioral Scientist, is a new paper on state-based performance funding by Nick Hillman, an associate professor of education at the University of Wisconsin at Madison, who has published several papers on the issue. Daniel Corral, a doctoral student at Wisconsin, co-authored the paper with Hillman.

Hillman's new study found equity problems with performance funding. The paper said minority-serving institutions in states with performance formulas on average lose "significant funding" on a per-student basis compared with other colleges in those states or with minority-serving ones in states without performance funding.

"These findings signal that minority-serving institutions are, on average, negatively affected by performance-based funding models and could ostensibly alter the missions of these institutions," the study concludes.

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