Performance-Based Funding Reinforces Disparities in Higher Education, Paper Suggests

As the struggle to fund higher education has continued since the 2008 recession, more and more states have opted for a performance-based funding model, which ties public college’s funding to their ability to retain and graduate students — an approach that some argue is doing more harm than good.

In a new paper, published by the progressive think tank Century Foundation, assistant professor of education at the University of Wisconsin-Madison Nicholas Hillman argues that this “pay-for-performance” approach to funding actually reinforces disparities within higher education and does little to improve graduation rates.

“While [it] is a compelling concept in theory, it has consistently failed to bear fruit in actual implementation, whether in the higher education context or in other public services,” he wrote. “In 2015, states actually saw fewer students graduate from college than in previous years despite the fact that most states provide incentives for colleges to improve performance.”

Because many factors may be to blame for students not graduating — including a lack of academic preparation or financial assistance — Hillman says that schools that don’t meet performance standards may miss out on critical funds that could be used to address struggling students’ needs. “In higher education, it may be easy to count the number of graduates, but the process of creating a college graduate is anything but simple,” he says.

He argues that institutions with limited means, which are often unable to provide all the necessary resources to their students, are the ones with the most need.

According to Hillman, 32 states now use performance-based funding for their public higher education institutions, a fact that he finds surprising; historically, two-thirds of all states that once experimented with the policy eventually discontinued it. While his hope is that the resurgence of this method indicates lessons learned and that new models will be more effective and sustainable, thus far, this hasn’t been the case.

“In Indiana, universities have become more selective and less diverse, while also not improving degree production. In Pennsylvania, universities did not produce more degrees even after operating under performance-based funding for nearly a decade. After Tennessee increased the financial incentives and redesigned its policy, universities did not improve their graduation or retention rates. And in Washington, the state’s community colleges responded not by producing more associate degrees but by increasing short-term certificates,” Hillman wrote. “Despite each state having goals related to improving college completions, their performance-based funding policies have not yet achieved the desired results.”

Instead of tying funding to student performance, thus exacerbating existing inequalities, he recommends that states allocate more resources to schools serving the most underrepresented and underprivileged populations.

“By focusing on closing inequalities, building the service capacity of colleges with the fewest resources, and supporting the professional development of professionals involved with educating students, states will be more likely to improve the performance of their public colleges and universities,” he wrote. “Experience and evidence show that this approach would be a more promising strategy for improving college completions.”

“This would usher in a new era of state funding that prioritizes results by prioritizing equity,” he added, “a radical proposition in a higher education landscape that has for too long rewarded inequality.”