Funding by Graduation Rate: Why Not?

Funding public colleges based on performance, specifically graduation rates, is the latest hot trend in higher education reform. I’ve mentioned before that I find this idea a little questionable, but well, it’s not something to complain about if it actually works. Does it?

No one knows. According to an article by Doug Lederman in Inside Higher Ed:

Several other states have had performance-funding programs in place for… [several years] and in a paper released this spring at the annual meeting of the Association for Institutional Research, two scholars studied Tennessee’s — the country’s “oldest and most stable performance funding program” — for insights into how such programs affect retention and graduation rates.

Not very much, the authors report. From 1979 through 2005, Tennessee altered its performance funding program numerous times, but throughout that period, the proportions of institutions’ state allocations that were tied to performance remained small, varying between 2 and 5.45 percent. And from 1997 on, the program rewarded four-year colleges and universities based on their retention and six-year graduation rates.

But between 1995 and 2008, graduation rates at Tennessee schools didn’t change. Tennessee apparently decided that the problem was not enough funding was connected to outcomes. And so in 2010 Tennessee “revamped its funding model to tie as much as 80 percent of institutions’ unrestricted appropriations to a set of outcome measures rather than to enrollment.”

Leaving aside for a minute the way that giving money for higher graduation rates has some potential to encourage grade inflation and punish open admission schools for admitting and trying to help people who are les prepared for college, the new Tennessee formula will certainly change something in the state.

If a state tries to fund on graduation and discovers it doesn’t work in the small scale I suppose it could work on a large scale, but there’s really no evidence of success here at all; this reform strategy is just a shot in the dark.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer