In fiscal year 2017, states will spend approximately $83.6 billion on higher education funding. Thirty-two of those states will tie their funding decisions to performance outcomes, a model that took hold during the most recent recession. At that time, states were looking for a way to tighten their collective belts and so, to get more bang for their buck, many of them decided to adopt performance based funding policies. Under such policies, states reward schools that perform well by giving them additional funding. As a way of measuring each college’s “success,” states use different metrics including looking at the number of degrees awarded, research grant dollars, and even student outcomes post-graduation. Though many states now give extra credit to schools with more minority or Pell Grant-eligible students, the dominant approach fails to adequately consider the many variables that set each student, their chance at success and, ultimately, colleges apart. As a consequence, performance-based funding has the potential to fail students and faculty, weaken individual colleges, and hurt the surrounding local communities.
To illustrate this point, let’s compare the race for funding dollars to running a marathon where a faster time earns more funding. Marathon runners come to the starting line from different backgrounds, with varying limitations, obstacles or burdens to finishing the race. Perhaps some never had training or coaching. Others may be less prepared mentally or physically. Some may carry more weight or have past injuries that hamper their speed. The competitor most likely to finish the race first (and take home the prize) is the athlete who is physically fit, well-trained, has solid experience and adequate financial backing. As with most races, a marathon (like school funding) isn’t a competition amongst equals. This is not inherently unfair, it’s a voluntary race and with only one winner. But in the case of performance-based funding, the competition for dollars is mandatory. And this is where the current state of “one-size-funding-fits all” runs off the track, threatening to hurt the very students it was created to help. The playing field is uneven and, as a result, colleges are effectively being punished for inequities that are out of their control.
Champions of performance-based funding argue that these policies improve the effectiveness of public colleges and universities by strengthening the incentives for administrators and faculty to meet the needs of their students. On the surface, this argument makes perfect sense. But let’s look at the marathon analogy again. If the prize money is doubled or even tripled, does it make all the runners suddenly run faster? Will those facing high obstacles somehow sprint to the finish and beat the well-trained athlete? Likely, no. Likewise, the results of studies looking at the effectiveness of performance funding policies find little evidence of any desirable results.
One major tripping point of the current system is the compulsory need for state colleges to demonstrate “success.” The way in which states measure college achievement varies widely, but one method of assessment that has risen to the top is to look at graduation rates or degrees awarded. If this metric is to be the gold standard for performance-based funding, then states must look at, and account for, disparities amongst student populations. Unlike the flagship institutions that many elites attended, the vast majority of US colleges serve a small local market. How prepared for college are their students? Do they have financial and family support? Do they have full or part time jobs? Do they have other outside obligations, like children or parents to care for? Did they come from a local area with excellent K-12 schools or was their school system struggling? Then states must also look at recruitment of qualified faculty and administrative staff. Does the college have a solid reputation that draws talent? Is the college’s location one that allows for a qualified pool of applicants from which to choose, or do the area’s brightest residents all leave for the big city? These variables, and many others not mentioned, make it near impossible to use general student success as an equitable measure of performance.
So how can states measure success in an effective, yet fair way? Perhaps colleges could compete against themselves. In other words, quantifiable improvement over past results would be rewarded. A few states have experimented with this approach. But, again, there are potential pitfalls to this metric as well. For example, an already-accomplished school may find it difficult to continue to boost student success in increments large enough to warrant increased funding. What if a school experiences a sudden downturn in the local economy? Or, conversely, what if there is a sudden, localized economic surge? Both occurrences would throw off measuring achievement and could needlessly change funding levels. All the same, having colleges compete against their past performance is almost certainly fairer than imposing one-size-fits-all performance standards on colleges serving radically different student populations, no matter how loudly colleges that already have impressive graduation numbers will object to not being rewarded unless they further increase their already-high numbers.
Measuring success at the higher education level is clearly imperfect, if not overtly unfair. Creating a metric that is an equitable measurement of success seems elusive. Therefore, state legislatures need to re-evaluate whether performance-based funding makes sense at all. If performance-based funding continues, then new and different methods of judging schools on a case-by-case basis need to be created and thoroughly examined. Econometric models could be developed that adjust for measurable differences across colleges, such as local economic conditions, community educational attainment, and the educational backgrounds of incoming students. Developing such models will take time and money and prompt difficult political choices. There are real questions about whether the most important differences across colleges can even be reliably measured. However, to continue to use the current performance-based system is to accept that states will be setting some colleges up for failure. Everyone involved wants students and colleges to flourish and thrive. To achieve success, each college running this race needs to be supported in a way that allows for the flexibility to finish the marathon at their own pace and not be punished for it.