Performance-based funding is a good idea, but badly executed

Performance-based funding of public colleges is a common practice in the United States. About 30 states make funding for public colleges contingent, at least to some extent, on the individual school’s performance. Defined by laws, these programs are rooted in the belief that market incentives are the primary motivators for individuals and institutions. While this may be true, the programs that are currently in place overlook that schools can, and often do, change their requirements and grading structures to appear as if they perform better than they actually do to secure more funding. Short-term degree programs that foster higher graduation rates and grade inflation are two of the most common measures taken by colleges with such funding systems. These countermeasures against objective reporting of statistics stand in the way of clear evaluation of public colleges, and until they are done away with, performance-based funding will not succeed in ensuring better school performance.

Performance-based funding initiatives assume that higher scores should be rewarded more than lower scores. Though such a solution to sub-par college completion rates should work in theory, in practice, there are too many workarounds that colleges can take advantage of to get more than their fair share.

According to The Chronicle of Higher Education, in the state of Washington, “the only real change has been a significant increase in the number of short-term certificates issued by community colleges,” degrees that are apparently intended to boost degree-completion rates. This problem is not constrained to Washington alone. All colleges in favor of short-term degrees, which take a year or less to complete and are not as marketable as an associate degree, are arguably guilty of skewing their numbers. This is not to say that a short-term degree is without value, only that it is not indicative of academic rigor equal to that of a bachelor’s or associate degree. As such, if performance-based incentives are to continue, they should take the level of academic rigor into account when parceling out funding. Doing so would likely reduce the accidental incentive to push students toward quicker, less effective and less marketable degrees.

An additional problem, according to an article by Inside Higher Ed, is the decision of some schools in performance-based funding systems to inflate grades so as to artificially minimize failing rates in classes. Incidents of alleged grade inflation are not constrained to schools in performance-based funding systems, but grade inflation takes on an especially significant role in such systems. It makes it appear as if students are performing much better than they actually are, and so it benefits the school’s budget at the expense of potentially weakening the institution’s reputation and the strength of its degree. However, when presented with a choice between reduced funding and pushing a few students through who would otherwise drop out, it is unsurprising that many schools decide to adopt the latter stance in order to preserve their already-strained financial resources.

Finally, there is the fear that such a system of funding benefits well-to-do students at the expense of first-generation and low-income college students. The Chronicle of Higher Education published an article explaining the position that colleges may take with respect to accepting significant numbers of these students: “There are concerns that too many students are going to college, and that states are using their scarce resources on students with a low likelihood of success.” In short, it would be more cost-efficient if schools took more students that are well-off, since these students are generally more likely to perform well and complete their degrees. Thus, students that are assumed to be potential liabilities, like first-generation students, low-income students and low-performing students, may be crowded out in the interest of securing more funding in a performance-based system.

Performance-based funding measures are not bad in and of themselves. In fact, all other things held equal, they make a great deal of sense. However, it is evident that their implementation is currently lacking adequate safeguards against abuse. Institutions of higher learning have many opportunities to unfairly tip the scales in their favor, and until those avenues are blocked by legislation and monitoring, performance-based funding may actually interfere with the goals of higher education — the dissemination of knowledge across society and providing ample preparation for careers. Some states, like Indiana, have performance-based funding systems, but limit their funding to as low as 5 percent of the total education budget. Others, like Ohio, have half of their education funding based on performance.

It is not completely clear whether or not performance-based measures are more effective at driving better results in higher education in practice. What is clear, however, is that if the programs are to succeed in their objectives, they need to be appropriately administered in order to ensure that students enjoy better education and preparation rather than being sold short for institutional financial gain.