When States Tie Money to Colleges’ Performance, Low-Income Students May Suffer

Milan Stanic

Performance-based funding has caught on in a big way in higher education. While that model lacks a precise definition, about 30 states now allocate at least some of the money they give to colleges based on achievement measures.

The idea has obvious appeal at a time when money is tight and holding institutions accountable is popular. But so far, the evidence has been mixed on whether such models actually drive the improvements — such as raising graduation rates — that they are meant to encourage.

Then there’s the question of how colleges respond to having a portion of their funds tied to measures of their performance. Some observers have worried that colleges game the system by changing the mix of students they enroll.

The Chronicle talked with Robert Kelchen, lead author of a new paper with evidence suggesting that those fears may be warranted. Colleges subject to performance-based funding, the paper says, brought in significantly less Pell Grant revenue per student than did colleges that were not, an indication they may be seeking higher-income students.

The conversation with Mr. Kelchen, an assistant professor of higher education at Seton Hall University, has been edited and condensed.

Q. Dozens of states have some kind of performance-based funding system. In general, what are those formulas meant to accomplish?

A. States are hoping to encourage colleges to operate more efficiently. There are concerns that colleges are spending money on things other than undergraduate education — for example, more money on student services, research, athletics — items that may be associated with success, but aren’t as directly associated in the minds of legislators as spending on instruction.

Q. Some experts worry that performance-based funding could have unintended consequences. What exactly are they concerned about?

A. The biggest concern is colleges simply becoming more selective in order to meet these performance standards. There are also concerns about colleges lowering their academic standards in order to improve the number of graduates.

Q. If colleges recruit students differently to get more money under this model, who wins? Who loses?

A. The winners would be particularly in-state students with strong academic backgrounds. And the losers would be students who may not have attended as rigorous of a high school, may not have done as well on standardized tests, or potentially even students who have been out of school for a while.

Q. And if that is happening, what does it mean for the college? For the state?

A. For the college it’s a good way to increase completion rates, but for the state as a whole the concern is that you end up with fewer people getting an education. And I’m not talking about admitting students who are not academically qualified. The students who may miss out are students who can handle the coursework, but their success is far from guaranteed.

Q. Your paper helps shed light on whether these concerns are warranted. What did you find?

A. We set out to look at whether colleges changed either their revenue or expenditure patterns in response to performance-based funding. In general, we didn’t find much evidence that colleges really changed how they spent their money. To some extent, that’s not surprising because it takes a long time for colleges to really change their budgets.

But what we found the clearest evidence of is colleges making small but significant changes to the amount of grant aid they gave out at the four-year level. And at both the two-year and four-year levels, we found a relationship between the amount of Pell Grant revenue a college received and whether it was under performance funding.

Q. Could there be other reasons for that shift?

A. There could be other reasons. Particularly in the four-year sector, colleges are already facing pressure to improve their outcomes, and it can be from alumni, parents, accrediting bodies, and the federal government. But these are pressures that more likely than not affect all states, not just states with performance funding. And with the research design that we used, essentially comparing schools in states with and without performance funding, those trends that affect all colleges should end up washing out of the regression.

Q. So if colleges are gaming the model by bringing in students who are easier to educate, what might policy makers — who probably didn’t want colleges to behave in this way — do about it?

A. First, I’m not entirely sure that all policy makers really did not intend for selectivity to change. There are concerns that too many students are going to college, and that states are using their scarce resources on students with a low likelihood of success.

Some states have actually tried to stop this by giving colleges more weight — essentially, more money — for graduating first-generation or low-income or less-prepared students. Then the question is: Are these incentives large enough to account for the extra money needed to educate these students? Do colleges know about these incentives? And do they line up with the other incentives that colleges already face to improve overall completion rates, instead of working to educate a broader swath of society that may have lower completion rates?

Q. That reminds me of efforts to change the incentives in college rankings. It’s complicated to change incentives.

A. Yeah, and part of the complexity is that there are these multiple accountability systems happening at the same time. Advocates for additional performance-based funding often state that the amount of funding coming through performance is too small. And if a college is only getting, say, 5 percent of its appropriations tied to performance, it might be a rational decision for it simply not to respond to the performance system and respond to other pressures such as college rankings.

Q. Where do you hope to see research on performance-based funding go from here?

A. There’s been some good work lately talking with faculty, staff, and administrators about how they respond to performance funding. And there’s also some work ongoing now actually talking with state legislators about their perceptions of performance funding, and I’d love to see that get into how they’re reacting to how colleges are reacting.

Beckie Supiano writes about college affordability, the job market for new graduates, and professional schools, among other things. Follow her on Twitter @becksup, or drop her a line at beckie.supiano@chronicle.com.