Should university funding be linked to performance?

As legislatures convene and a number of new governors take office, it is clear that states face critical opportunities and challenges when it comes to supporting their higher education systems.  One issue that reflects both is performance- or outcome-based funding for institutions. These are policies that tie the level of state subsidy for a college or university to its performance as measured against certain criteria. Recent discussions of this issue suggest that some basic assumptions about what outcome-based funding is and what it represents need to be checked.

1. Belief: There is one way to do outcome-based funding.
Reality: There are about as many different types of outcome-based funding as there are states in the union.  The recently released analysis funded by the Bill & Melinda Gates Foundation shows that outcome-based models range from allocating small amounts of supplemental funds to large amounts of base funds, and everything in between.  Accordingly, policymakers and higher education leaders need to put reviews of individual states’ experiences in context and resist the temptation to make sweeping judgments based on a single study.  What we’re learning is that when you’ve seen one outcome-based funding model, you’ve seen one outcome-based funding model.

2. Belief: Outcome-based funding works or it doesn’t.
Reality: Outcomes based funding may have positive impact even if it can’t be causally linked to immediate and significant increases in completion and attainment.  While some researchers and observers are quick to question outcome-based funding models that do not produce statistically significant gains, it is also important to note that research on newer and more robust models indicate a significant relationship between their adoption and adoption of high impact practices such as redesigning remedial education and developing integrated planning and advising systems.  While correlation does not equal causation, we should take just as much notice of the former as the latter when it comes to improving outcomes for students.

3. Belief: Outcome-based funding is the policy solution to completion and attainment challenges.
Reality: We know from years of experience in K-12 and higher education reform that there are no silver bullets.  Outcome-based funding is just one tool that states can adopt as part of a broader agenda to boost educational attainment and productivity.  In states that are being recognized for their innovation and improving outcomes, such as Tennessee, an outcome-based funding model is just one part of the equation.  Just as important are efforts to improve data and accountability systems, boost college readiness, and help students more efficiently achieve credentials of value.

As states press ahead with efforts to improve outcomes for all students, they need solid evidence and informed debate on options to transform higher education.  When it comes to outcome-based funding, there is room for improvement on both fronts, and my organization is committed to that cause.

This article is published in collaboration with Bill & Melinda Gates Foundation. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Dr. Daniel Greenstein, Director of Education, Postsecondary Success in the United States Program, oversees work to substantially increase the number of students that acquire a postsecondary degree or certificate.

Image: Profile of students taking their seats for the diploma ceremony at Harvard University in Cambridge REUTERS/Brian Snyder.