Who's Tying Money to College Performance, and How? A Report Breaks It Down

February 12, 2015

Over the past few years, performance-based funding has picked up momentum across the nation. Yet there's little consensus on the best way to carry out the controversial strategy, which rewards or punishes colleges for their graduation or retention rates.

A report released on Thursday by HCM Strategists, and funded by the Bill & Melinda Gates Foundation, seeks to provide some answers. Taking the form of a state-by-state breakdown, it assesses and categorizes the policies in 35 states—each of which have either put in place or begun developing outcomes-based funding models to supplement or replace traditional, enrollment-based ones.

The report divides the policies into four levels, placing each state's system on a spectrum from rudimentary to advanced. Only two states’ funding models are considered advanced: those of Tennessee and Ohio.

Although it avoids sweeping claims about the value of performance-based funding, the report says that outcomes from states early to adopt are positive.

For example, Tennessee reported positive learning gains at all of its institutions, and Ohio saw greater rates of completion, especially among at-risk students.

And the report attempts to tease out which practices get results. Strong state models, it says, have clearly defined completion or attainment goals, and combine a substantial (25 percent or greater) level of funding with a stable base funding structure. Focusing on underrepresented students is also important, according to the report. So is including all state institutions in the model but applying different standards for different sectors.

Those generally optimistic findings contrast with the results of a report published last month by the American Educational Research Association. The researchers behind that document, David A. Tandberg and Nicholas W. Hillman, have completed several studies on performance-based funding. They obtained a copy of the HCM report before its release, and they argue that it ignores less-favorable research.

In their own research, Mr. Tandberg and Mr. Hillman haven’t seen significant increases in completion because of outcomes-based funding.

Here to Stay, but Controversial

In fact, the new report's financial supporter, the Gates Foundation, has pushed the idea of performance-based funding. Along with other influential organizations like the Lumina Foundation, it has encouraged many states that have adopted or readopted the method.

As of the 2015 fiscal year, 26 states are using outcomes-based funding policies, and 10 more are developing them. (The report counts Oregon in both categories, as it is developing a model for its two-year colleges and carrying out a revised model for its four-year institutions.)

Performance-based funding is probably here to stay, Mr. Tandberg acknowledged, but he said more-rigorous research was necessary to make sure it’s working.

"What can we expect from it? What is reasonable? What is good?" he asked. "If we ignore some of the findings that don’t paint it in the best light and don’t engage with it in a healthy way, it’s going to do institutions and students a disfavor."

The author of the new report, Martha Snyder, said much research on the strategy doesn’t fully account for differences in how states design or execute their policies.

"Ideally, this helps refine those analyses," Ms. Snyder said of earlier research papers. "The concerns we have with those reports is they tend to be narrow in their scope."

The goal of her report, she said, was to inform and advance the conversation about performance-based funding by clearly distinguishing states’ policies. That clarity should help future researchers, she said, as well as state policy makers.