A new report examines two decades of research on performance-based funding for public higher education institutions, determining that most studies have found the policy has null or modest impacts on institutional outcomes.
As of the 2020 fiscal year, 41 states have adopted performance-based funding policies. The percentage of appropriations tied to performance metrics varies considerably across states, the report shows. For example, Arkansas only tied 3 percent of state funding to performance outcomes, while Ohio links 100 percent of funds to performance measures.
After synthesizing more than 50 studies published between 1998 and 2020, researchers found that performance-based funding typically yields modest or null effects on institutional outcomes and that the policies come with a host of unintended consequences, some which states have attempted to address.
Among those consequences is an incentive for colleges to become more selective by admitting students who were most likely to complete their degrees, therefore boosting the institutions’ performance metrics. Prior studies included in the report show that selective public institutions receive more public funding and that less selective institutions, nondoctoral universities and rural institutions receive less.
Performance-based funding “threatens to further widen the resource gap between colleges and universities that enroll larger numbers of racial minority and low income students and institutions that primarily enroll students from more advantaged backgrounds,” the report said.
Also, some policies recognized degree completion regardless of the length of time it takes students to complete a degree. As a result, community colleges with shorter programs could receive more state funding, and the policy incentivizes colleges to offer shorter programs.
Some states have taken steps to address these issues, including by offering bonuses for graduating low-income, adult, first-generation, racial minority or otherwise underrepresented students.