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More states grade public colleges on performance

Financial support for college students has long been based on how well they perform in the classroom. Now, for public colleges and universities, it's their turn to be graded.

From Maine to Hawaii, some 36 states are allocating money for higher education based, in part, on performance measures designed to reward schools that raise graduation rates, award more high-tech degrees and better prepare students for the job market.

Proponents of the idea say that, as state budget cuts have forced lawmakers to make tough choices, it only makes sense to reward public colleges and universities that get the most bang for every taxpayer buck. But critics of these schemes say they don't work, and can even produce unintended consequences that end up hurting students in the long run.

"It's appealing; it sounds great from a legislative point of view if you're selling this to your constituents," said Ray Franke, a higher-education researcher at the University of Massachusetts, Boston. "But the idea has been implemented in Europe and other countries, and for the most part it's ineffective."

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That was the conclusion of a 2013 University of Wisconsin study that looked at the impact of performance-based higher education funding on the number of students who completed their degrees at two- and four-year programs between 1990 and 2010.

"There is no meaningful evidence of effectiveness," wrote Florida State University professor David Tandberg, one of the report's authors. "But we see a rush toward adoption. It seems as though there is something other than evidence at work here."

The idea of paying public colleges for performance isn't new. Tennessee rolled out the nation's first such program in 1979. But few other states adopted similar programs until the 1990s. By the 2000s, according to Tandberg, several states dropped performance funding.

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But after the Great Recession unleashed one of the worst fiscal storms in generations, performance-based funding plans returned to statehouses across the country. Since the recession, states have closed some $425 billion in budget shortfalls, according to the Center on Budget and Policy Priorities, a research institute. And they're not done cutting yet.

The budget squeeze brought big cuts in funding for higher education. By 2013, states had cut spending to $2,353 per student—about 28 percent less than in 2008, according to the Center. Eleven states cut funding by more than one-third, and two states—Arizona and New Hampshire—cut spending per student in half.

But now, even as the economy has recovered and tax revenues are growing again, state budgets remain under intense pressure from the growth of mandatory spending programs, including pensions and health care for retirees and Medicaid for lower-income households.

That ongoing budget squeeze has helped revived the idea of using various criteria to steer higher-education funding to schools that measure up and restrict payments to those that don't.

The plans in place—and those rolling out over the next few years—vary widely. Some, like Illinois, apply to a tiny fraction (less than 1 percent) of state funding. Others, like Tennessee, apply performance tests to virtually all higher education funding.

Most set aside funding for basic operations and then tie additional funds or new appropriations to a laundry list of state-mandated goals, from boosting completion rates to bonuses for schools that award a bigger share of degrees in science, technology, engineering and mathematics.

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But critics say it's not at all clear that these funding plans accomplish the goals they set out to achieve, and many even have unintended negative consequences.

One common concern: If colleges try to boost graduation rates by restricting access to students whom they judge to be less likely to finish a degree, schools may end up awarding fewer degrees, not more.

"You can increase college completion pretty quickly by accepting and admitting better students," said Franke. "If we now shift our attention from access to higher education to just college completion we may create perverse incentives to accept students that have higher odds of completing school."

That was just one of the unintended consequences of performance funding identified by Columbia University researchers last fall, based on interviews with administrators and department chairs at nine community colleges and nine universities in Indiana, Ohio and Tennessee.

Among the performance funding pitfalls they identified were weakened academic standards, lack of cooperation between schools that saw each other as competitors for scarce funding, unexpected compliance costs and lower staff and faculty morale.

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But the pressure on higher-education spending is likely to continue – no matter how well or poorly these performance-based funding plans work in the long run. With politicians loath to propose tax increases to meet rising mandatory state costs for health-care and pension benefits, public colleges and universities will likely have to continue to tighten their belts.