Performance based funding is the latest trend in public higher education. For too long, critics contend, states have funded colleges based purely on enrollment. Perhaps if they funded schools based on performance, particularly graduation rates, colleges would have an incentive to do better, be more effective, and make improvements.

It could, in theory, be implemented well. It could also be implemented very, very poorly.

Kysie Miao over at the center for American Progress takes a look at existing state plans to fund colleges based on performance. She focused on six states: Ohio, Pennsylvania, Indiana, Tennessee, Washington state, and Louisiana.

While all states have incorporated elements of performance funding into their plans, the polices look very different.

Ohio has different funding formulas for universities, “regional university campuses,” and community colleges. The formulas, in general focus on degree and course completion. The formula also gives colleges particular rewards for succeeded with “at-risk” students. The policy also contains a provision that ensures that, while colleges can earn money, they can’t lose it, or at least they can’t lose more than 1 percent of their funding from year to year.

Pennsylvania gives $36 million state appropriations to performance-based funding. The system has eight provisions (degree completion, students retention, faculty productivity, etc.) in order for colleges to receive more money. If colleges do well on all 8 indicators they can get their share of the $36 million. If not they receive no additional money. According to the report “since the approach was adopted in 2000, Pennsylvania’s public colleges have experienced a 10 percent increase in overall graduation rates.”

Indiana also has a reasonably sophistical performance-based model in place for funding state colleges. The Indiana plan does not distinguish between different institutions; they’re all assessed the same way. The state uses several indicators, including number of degrees issued and the degree completion of low-income students, and schools can receive $5,000 for each additional bachelor’s degree awarded.

The state with the most serious performance funding model is Tennessee. Eventually over 80 percent of all state higher education funding will be issued based on performance alone. The state measures performance by factors including student retention, degree attainment, and remedial course completion. Tennessee adjusts its performance funding distribution to allow for institutional differences (job placement matters more at state colleges, research matters more at universities; remedial course completion matters more at community colleges).

Washington first implement performance-based funding in 1997 but dropped it two years later due to public opposition. The second performance-based funding attempt debuted in 2007. Washington public colleges receive money through achievement points based on the number of students who do things like “make progress in remedial courses,” earn a certain number of college credits, receive a degree, “complete an apprenticeship training program.” The entire program is a form of supplemental funding. Colleges receive the same base funding from the state no matter what their performance looks like.

Louisiana has a program based on the 2010 GRAD Act, about which I’ve written before, that allows colleges to hike tuition if they meet certain performance goals. Colleges that increase student performance, and also improve “efficiency and accountability” will be rewarded with the power to change students more.

So that’s how performance-based funding is working across America now. Miao says that some best practices for such reforms involve “actively involving key stakeholders in the funding model’s design,” “ensuring that enough money is apportion for performance to create strong incentives,” recognizing the structural differences between schools, “using indicator the emphasize progress,” and having policies in place to prevent schools from losing huge amounts of money from year to year.

One of the problems with this assessment strategy is that referring to these things as best practices is a little misleading, since no one really know what works here. There are, granted, some policies that appear to make sense, and some that appear to have extensive problems, but no one has ever been able to figure out what the best funding polices are to increase graduation rates, improve learning, and reduce student costs. If there was any performance based system that could do that, we’d already know about it, wouldn’t we?

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