Is Performance-Based Funding the Future of Higher Ed?

The concept of performance-based funding is not new. In fact, it has been implemented by several states since the 1990s, including Pennsylvania State System of Higher Education in 2000 (Hillman et al., 2014). It has both its supporters and its detractors. Yet, some believe the concept of performance-based funding is the answer to much of what ails the higher education system.

What is performance-based funding?

Performance-based funding (PBF) dates back to what is termed the New Accountability movement of the 1990s (Hillman et al., 2015).  It means that federal and/or state funding of a university or college is tied to its performance. Performance refers to measurable goals, such as the number of graduates and successful graduates from a program and the institution. It is all about completion rates and addressing the needs of various sectors of society. It is what many would refer to as an accountability tool.

What is the purpose of performance-based funding?

Performance-based funding is all about making universities and colleges live up to certain standards. Institutions must set goals, for example, the number of individuals who graduate successfully from their programs. According to some, PBF is a way to stimulate two kinds of changes in higher education:

• Current and traditional behavior of the educational institutions
• The state of the outcome of those who attend these same institutions

PBF also requires that the college have explicit high and low order goals. The former refers to such things as retention rate while the latter refers to something like degree completion (Hillman et al, 2015). The overall intent is to direct the institution to increase student performance levels for the sake of funding. The focus is financial incentive, which, according to some research, can result in errors.

What states have implemented performance-based funding?

Since 2000, several states have implemented PFB in various forms. In fact, more than twenty-six states employed performance funding programs in June 2014. By early 2015, 35 states had implemented PFB. Other states, such as Utah, plan to increase their PFB in the coming years. While the support for such programs exists and is continuing to build, some are beginning to doubt the level of success that was initially touted.

What are the concerns with performance-based funding?

While some research does indicate that performance-based funding works effectively in persuading universities and colleges to change some of their policies, questions have been raised concerning the impact on students. Recent research conducted by Hillman, et al. (2015) indicates it has little if any effect on degree completion. In fact, a 2014 study of PBF in Pennsylvania found it to be ineffective in this regard.

Another concern is that institutions will begin enrolling students who have a better chance of graduating, putting students who are at a higher risk of failure at a further disadvantage. Institutions who take a chance on these students may be end up being penalized as a result, for example, many community colleges.

What can be done?

These questions continue to raise red flags when it comes to performance-based funding. Yet, it does not necessarily mean the policy should be abandoned. Further research needs to be done. The system may be readjusted to avoid these types of penalizations and to address the concerns of at-risk students.

Additional sources:

Dougherty, Kevin J.; Jones, Sosanya M.; Natow, Rebecca; Lahr, Hana; Natow, Rebecca; Pheatt, Lara; and Reddy, Vikash T. (2013). “Performance Funding for Higher Education: Forms, Origins, Impacts, and Futures.” The ANNALS of the American Academy of Political and Social Science 655 (1): 163-184.

Hillman, Nicholas W., Tandberg, David A. and Gross, Jacob P. K. (2014). “Performance Funding in Higher Education: Do Financial Incentives Impact College Completions?” The Journal of Higher Education 85 (6): 826-857.

Hillman, Nicholas, Tandberg, David A; and Fryar, Alisa H. (2015). “Evaluating the Impacts of “New” Performance Funding in Higher Education.” Educational Evaluation and Policy Analysis Month, 20(X): pp. 1 –19.

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