Performance-Based Funding: Chasing Outcomes Over Real Learning

Performance funding for public colleges and universities is a bad idea on fire these days. Even as more research clearly shows the plans don’t work as intended, nearly 30 states, most recently Florida, have adopted punitive approaches to paying for higher education. “They have this one-size-fits-all vision for higher education, and they have one idea about what a model university should be,” said Tom Auxter, president of the United Faculty of Florida. “They don’t get that different universities have different missions, and different constituencies that they serve.”

Twenty-five states currently have some kind of performance-based funding system for their public colleges and universities, and five (Colorado, Georgia, Montana, South Dakota and Virginia) have approved plans not fully in place yet, according to the National Conference of State Legislatures.

The way performance-based funding typically works is a state will set aside 5 to 50 percent of their higher-ed funding, and then use those millions of dollars to reward institutions with the most graduates or course completers. Although NCSL encourages states to also “reward colleges that graduate low-income, minority and adult students to ensure that institutions keep serving these populations,” most states do not have benchmarks that acknowledge some students take longer to graduate or may need additional support along the way.

In Florida specifically, the new plan prioritizes the percentage of graduates with jobs; the average wages of graduates; the cost per degree; the six-year graduation rate; the number of STEM degrees; the percentage of students with Pell Grants, and a few other factors. The three (out of nine) universities that perform worst according to these metrics will lose probably 1 percent of their funding this year—or about $200,000 a year, under pending legislation—while the other six get more money.

All of these new plans replace traditional formulas, which financed institutions according to how many students they served, and how many faculty, staff, and other resources they needed to deliver a high-quality education. But those traditional formulas are expensive, and anyway, states haven’t fully funded higher education in a long, long time.

Where’s the Money?

“(State legislators) are evading the question, and the question is: what does it take to adequately fund our community colleges?” said Joe LeBlanc, president of the Massachusetts Community College Council. In Massachusetts, up to 50 percent of state funding for two-year colleges now depends on graduation rates and other metrics. Meanwhile, funding for Massachusetts higher education plummeted 38 percent between 2008 and 2012. “We’re not even close to fully funded,” LeBlanc scoffed.

Not surprisingly, Florida is right there, too, with a 41 percent cut over the past four years. And they’re not even the worst. During those same years, funding to higher education was chopped by half in Arizona and New Hampshire. Making matters worse, those cuts have come on top of decades of previous cuts. As a result, public colleges in the U.S. have essentially become privatized. At the University of Oregon, for example, just 5 percent of the school’s operating costs will be covered by the state this year.

“To work, even in theory, performance-based funding depends on rewarding the most successful, so it depends on more funding,” said Mark F. Smith, NEA senior policy analyst for higher education. “But there are much better investments for that additional funding that would actually help students learn,” he pointed out. (Academic counseling, for example, has been shown to increase student persistence and graduation rates.)

And it Doesn’t Even Work

If the aim of performance-based funding is to elicit more college graduates—something the United States needs in the multi-millions to keep up with its workforce demands—then we should see increasing graduation rates in states with those plans, yes?

The answer is no, according to several studies, including one by David Tandberg of Florida State University. In a co-authored paper, “State Performance Funding for Higher Education: Silver Bullet or Red Herring?” Tandberg found that performance funding “more often than not” failed to effect degree completion.

In fact, in the few instances where it did have an effect, it was more likely to be negative—graduation rates actually declined. The authors concluded: “Our analyses revealed that performance funding is not the silver bullet some are making it out to be. Instead, it may be a red herring, distracting policymakers from dealing with more fundamental policy problems, such as inadequate state funding or student financial aid.”

Meanwhile, another study shows the effects of performance funding might be particularly harmful at historically black colleges and universities (HBCUs), where often students take more time to graduate because they’re also working or taking additional developmental courses.

The unintended consequences of outcomes-based funding plans have been made very clear in K12 education, where big rewards for high-stakes reading and math test scores have led schools to set aside other subjects, like science and art. But unintended doesn’t mean unanticipated—in the 2011 NEA Thought & Action journal, Diane Ravitch warned higher-ed faculty and staff about the likely consequences of chasing “outcomes” for funding.

“This is the pursuit of numbers for the sake of meeting a quota, not for the sake of learning,” she said. “If numbers are our goal, we can give every student a college degree and not subject them to the trouble (and expense) of going to classes. In fact, with the rapid spread of online ‘learning,’ that seems to be the wave of the future.”

There’s also the cautionary tale of the Soviet shoes, often recounted by Richard Rothstein of the Economic Policy Institute. To meet impossibly high Kremlin quotas for shoes, Soviet factory workers just made smaller shoes!

Unfortunately, they didn’t fit anyone.