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Performance-Based Funding of Higher Education

Performance-Based Funding of Higher Education

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Kysie Miao reviews the history of performance-based funding in higher education at the state level.
Kysie Miao reviews the history of performance-based funding in higher education at the state level.

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Published by: Center for American Progress on Aug 07, 2012
Copyright:Attribution Non-commercial


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1Center or American Progress | Perormance-Based Funding o Higher Education
Performance-Based Fundingof Higher Education
A Detailed Look at Best Practices in 6 States
Kysie Miao August 2012
oday’s scal environmen has orced saes o careully consider how heir limieddollars are spen on higher educaion. Saes have commonly allocaed unds on he basis o enrollmen, a process ha reinorces heir commimen o college accessibiliy and ensures a relaively equiable disribuion o per-suden spending across insiu-ions. Enrollmen, however, is a poor predicor o overall insiuional perormance.Ongoing budge cus, combined wih sagnaing graduaion raes and a rising naionaldemand or highly educaed workers, make i increasingly imporan or saes o invesin compleion oo.I’s ime o rehink he curren possecondary unding model. o ensure ha axpayerinvesmens yield he bes possible reurns, saes mus incenivize boh college accessand college compleion.Perormance-based unding is a sysem based on allocaing a porion o a sae’s highereducaion budge according o specic perormance measures such as course comple-ion, credi atainmen, and degree compleion, insead o allocaing unding basedenirely on enrollmen. I is a model ha provides a uller picure o how successully insiuions have used heir sae appropriaions o suppor sudens hroughou heircollege careers and o promoe course and degree compleion. Furhermore, his und-ing srucure incorporaes boh enrollmen and perormance merics as incenives orcolleges o coninue o make progress on hese imporan objecives.Tough many new perormance-based unding policies have ye o produce meaninguldaa, several bes pracices have emerged in he policy discussion. Many educaion lead-ers involved in perormance-based unding have made he ollowing recommendaions:
Gain he suppor and involvemen o key sakeholders early on in he process.
Ensure ha enough money is apporioned or perormance o creae incenives haare sucienly srong o change insiuional behavior.
2Center or American Progress | Perormance-Based Funding o Higher Education
Develop dieren unding ormulas or communiy colleges and universiies or usehe same ormula bu weigh i dierenly depending on he ype o insiuion andcharacerisics o he suden populaion.
Inegrae all merics and provisions ino he sae higher-educaion-unding ormula,as his makes i more durable when saes are aced wih budge cus.
Use indicaors ha measure boh progress (course compleion, momenum, crediatainmen) and compleion (degrees conerred, program compleion), wih anemphasis on progress.
Incorporae sop-loss provisions ha preven insiuions rom losing more han acerain level o unding each year.
Implemen a year o learning during he rs year ha he policy is in eec, a period in which sae spending does no change bu colleges receive repors deailing how heirunding would have been impaced under he new measures; and/or gradually phase inover a muliyear period he percenage o oal unding allocaed based on perormance.
Subjec he sysem o requen evaluaion and make adjusmens where needed. As higher educaion spending coninues o decline, saes ace growing pressure o dem-onsrae ha hey are ully invesed in he long-erm success o heir sudens. Goingorward, i is imperaive ha saes and he ederal governmen coninue o exploreperormance-based unding opions, paricularly in he conex o a series o oucomes-ocused higher educaion reorms.Te ollowing issue brie will summarize he hisory o perormance-based unding inhigher educaion a he sae level, ouline in urher deail a subse o sae experiences,and recommend ha saes coninue o explore perormance-based unding opions inheir higher educaion sysems.
A brief history of performance-based funding
Beween 1979 and 2007, 26 saes experimened wih measures ha atemped o incor-porae insiuional perormance as a deerminan o higher educaion unding. Duringhis period 14 saes ha had enaced perormance-based unding programs evenually disconinued hem, alhough wo o he disconinuing saes laer re-esablished new programs.
Te saes’ dissaisacion semmed rom he ac ha hese early undingmodels were plagued by a number o aal design aws.
In paricular, many programs were inexible o insiuional dierences, resuling in rigid and seemingly arbirary requiremens ha ocused oo heavily on degree compleion and ailed o reward iner-mediae progress. Furhermore, many models ailed o allocae enough unding o creaegenuine incenives or colleges o improve. Afer ha iniial wave o ineecive models, perormance-based unding has onceagain begun o gain populariy. Careul o avoid he misakes o he pas, proponens o 
3Center or American Progress | Perormance-Based Funding o Higher Education
“perormance-based unding 2.0” end o emphasize he need o reward progress overcompleion, o recognize he dierences ha exis beween communiy colleges anduniversiies, and o pariion o larger percenages o base unding in order o inceniv-ize ransormaive change.
Current state policies
Despie heir common goals, saes ha currenly incorporae “perormance-basedunding 2.0” in heir higher educaion sysems dier widely in he srucure o heseprograms. In paricular, hey vary in he percenage o oal unding allocaed owardperormance-based measures, he ypes o behaviors ha are incenivized, and he und-ing ormula used o measure perormance beween dieren ypes o insiuions. Somesaes have had more success han ohers; however, mos policies are oo new o producesignican resuls a his ime.Te diverse naure o curren perormance-based unding policies provides a useullandscape by which o analyze he eecs o a variey o levers. As meaningul daa begins o accumulae, policy leaders can ideniy bes pracices and develop srongerrameworks or uure programs. Le’s look a he experiences o several saes.
Prior o 2010 Ohio’s higher educaion unding sysem relied on challenge grans, whichrewarded insiuions wih addiional unding i hey me various enrollmen and com-pleion objecives. Te sae began o realize, however, ha his sysem ailed o properly incenivize colleges or hree reasons:
Te unding came rom addiional sources raher han rom he base allocaion.
Te amoun o perormance-based unding ha colleges could receive was oo low inproporion o enrollmen-based unding.
Every school received some sor o bene.
Ohio’s new perormance-based unding model akes signican seps o address heseand oher issues. Te sae has allocaed 5 percen o is oal higher educaion undingor perormance in 2012, an amoun ha is expeced o rise o 30 percen by 2015.
orecognize insiuional dierences in mission, suden body composiion, and goals,Ohio developed hree unique unding ormulas or is universiies, regional universiy campuses, and communiy colleges. While he universiies are primarily unded basedon course compleion and, over ime, degree compleion, he ormula or communiy colleges is more nuanced. I includes indicaors such as he compleion o developmen-al educaion courses, he ransiion beween developmenal and college-level courses,

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