More States Tie Money to Colleges’ Performance, but That May Not Work

January 14, 2015

A report being released on Wednesday throws more cold water on a trend that’s been sweeping the nation for the past several years, most recently with the White House proposal that seeks to make two years of community college free for everyone.

It’s called performance-based funding, and it boils down to rewarding or penalizing colleges based in part on the numbers of students they graduate or retain from year to year. Some 30 states now distribute at least a portion of their higher-education money based on those and other achievement measures, with another four plans in the works. President Obama last week called on states to step up those efforts in his free-tuition plan, saying they should allocate a "significant portion" of their higher-education dollars based on such measures.

The problem, according to the report, published by the American Educational Research Association, is that the strategy doesn’t work—at least not in Washington State, where the study was conducted. Similar studies have reached the same conclusion in Pennsylvania, Tennessee, and other states, the authors say.

The approach appears to have had little or no effect on graduation or retention rates in Washington, where the only real change has been a significant increase in the number of short-term certificates issued by community colleges, credentials with limited labor-market value, the report concludes.

"This does not mean that colleges cannot improve retention," the report says. "Rather, we suggest that improving retention requires resources and capacity that colleges simply may not currently have" at a time when their budgets are squeezed and state support has dried up.

Pushed by Foundations

Advocates for performance-based plans disagree and predict they will continue to spread, buoyed by support from major foundations, the president, and lawmakers who want to see colleges held accountable for poor graduation rates and rewarded when they turn things around.

The report, "Evaluating the Impacts of 'New' Performance Funding in Higher Education," is based on a study focused on Washington State’s Student Achievement Initiative, which was adopted in 2007 and is widely recognized as a model for performance-based accounting systems nationwide.

Since the late 1970s, about half of the states have enacted laws to base at least a small portion of their higher-education support on performance measures. But early on, the amount of money at stake was too little to drive change—usually less than 5 percent of a state’s contributions to colleges.

Tennessee, which now bases 100 percent of its higher-education spending on performance measures, adopted the nation’s first performance-based plan in the 1970s, the report says. By the turn of the century, 23 states had them, but when money grew tight, many dropped them.

In recent years, influential organizations like the Bill & Melinda Gates Foundation and the Lumina Foundation, nonprofit groups they support, and other institutions have pushed the idea aggressively, prompting many states to either adopt or readopt their plans. Lawmakers in many states have been swayed by arguments that poor college-completion rates threatened the nation’s vitality at a time when it is coming out of a recession and the demand for college-educated workers is booming.

‘Here to Stay’

While the early plans focused on long-term goals like graduation rates, the new versions, which the reformers have dubbed "Performance 2.0," give colleges credit for intermediate measures such as student retention or transfer rates, or the numbers of students completing remedial mathematics or earning their first 15 college credits, said the report’s lead author, Nicholas W. Hillman, who discusses the findings here. He is an assistant professor of educational leadership and policy analysis at the University of Wisconsin at Madison. His co-authors are David A. Tandberg, an assistant professor of higher education at Florida State University, and Alisa Hicklin Fryar, an associate professor of political science at the University of Oklahoma.

Among the unintended consequences some have warned of, the new allocation formulas have prompted some four-year colleges to raise their admissions standards, according to a recent study, and spawned fears that open-access community colleges might close their doors ever so slightly to avoid being penalized for the performance of their weakest students.

The authors of the new report gave The Chronicle permission to share an embargoed copy of it with several higher-education experts who closely follow performance funding to allow them to comment.

Complete College America, a nonprofit advocacy group heavily financed by the Gates Foundation, is one of the strategy’s biggest advocates.

"Performance-based funding is here to stay," the group’s president, Stan Jones, wrote in an email to The Chronicle. Drawing broad conclusions on one state’s experiences is a mistake, he added, especially when the amount of money at issue represents such a small proportion of the state’s higher-education budget—less than 1 percent in some years.

It’s also too early, he wrote, to judge how such programs are working, since as recently as 2009 only Indiana and Ohio had the newer version of performance-based plans that applied to all their public colleges. Tennessee followed with a plan approved in 2010 and rolled out the following year.

College-completion results will take six to eight years to measure, collect, and report, Mr. Jones said. And he said his group had never claimed that performance-based formula alone would lead to higher graduation rates. "It is a necessary condition for change to occur," he wrote. "Performance funding gets attention and signals a focus on completion." The reforms that follow "will produce the results that everyone is seeking."

Carrots and Sticks

Experts also disagree on the value of short-term certificates. Those credentials, the report’s authors say, "yield less value in the labor market than associate’s degrees but are far easier for colleges to produce," so they’re the fastest and simplest way for colleges to improve their completion rates.

A recent study by the Community College Research Center at Columbia University’s Teachers College concluded that such certificates, which take less than a year to complete, do not help most recipients get jobs or earn more money, But they’re proliferating quickly; the number of short-term certificates awarded nationally grew by 151 percent from 2000 to 2010, the study found.

Some higher-education experts say they are nonetheless valuable. Short-term certificates can provide important boosts along a path strewn with roadblocks and detours, according to David S. Baime, senior vice president for government relations and research at the American Association of Community Colleges.

"If you give people tangible measures of progress along their educational or career pathways, it incentivizes them to continue," he said on Tuesday.

The new report, which relies heavily on federal education data, doesn’t capture all of the successes of Washington State’s students, especially in the past two years, said Jan Yoshiwara, executive director for education at the Washington State Board for Community and Technical Colleges, which administers the state’s performance-based plan.

"It has changed the conversation about where we put the emphasis, from focusing just on enrollments to what students are actually accomplishing," she said. "We’re focusing on key places where students get stuck on their way to a degree and how we can overcome them."

But Mr. Hillman, the report’s lead author, said policy makers should not rest their hopes on performance-based plans.

"We need to pursue policies that help students, and I’m not convinced this is the way to do it," he said. "These are complex organizations, and to think that colleges only respond to carrots and sticks goes against how they truly operate."

Katherine Mangan writes about community colleges, completion efforts, and job training, as well as other topics in daily news. Follow her on Twitter @KatherineMangan, or email her at