Will Performance-Based Funding Further Disadvantage Disadvantaged Students?

March 24, 2015

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Lyle McKinney of the University of Houston and Linda Serra Hagedorn of Iowa State University look at the Texas Student Success Points Model.

Performance-based funding (PBF) is becoming increasingly popular as an accountability tool to reward higher education institutions for specific outcomes believed to enhance student progress and completion. A recent report indicates that 35 states have either implemented, or are currently developing, PBF polices for higher education.

Despite its popularity, however, there is a substantial body of empirical evidence that shows PBF can have troubling and unintended impacts.

One of the most commonly cited unintended consequences of PBF is that resource-dependent colleges may have an incentive to “cream” admissions by enrolling students who are more likely to graduate, while curtailing admission of disadvantaged groups that are less likely to complete. Moreover, there are concerns that PBF could disproportionally penalize colleges that predominately serve students from disadvantaged backgrounds.

In 2013, Texas adopted PBF for the state’s 50 community colleges. Texas’ Student Success Points Model awards funding to the colleges based on student achievement of intermediate performance metrics (i.e., completing developmental coursework, passing college-level gatekeeper courses, completing 15 and 30 semester credit hours) and key milestones (i.e., earning a certificate or associate degree, four-year transfer). Colleges are currently awarded $185 for each “success point” achieved by a student. While the PBF formula represents only 10 percent of state funding to the colleges, there have already been proposals in the legislature to increase this share to 25 percent.

To offer some early analysis of the potential impacts of this new policy, we conducted a study that retroactively applied each of the success point metrics from Texas’ PBF model to a cohort of 5,900 first-time-in-college students who entered a large, ethnically diverse, urban community college system in Texas in fall 2007. We tracked their enrollment behaviors across six academic years. One objective of our study was to understand which students would procure little, or no, PBF for the college during their time of enrollment.

Our results revealed that, on average, African-American students, older adults, part-time students, those who had a GED versus a high school diploma, and those assigned to the lowest level of developmental education procured significantly less PBF for the college than their peers. These student groups were overrepresented among the 28 percent of the cohort that would have procured zero PBF for the college during their time of enrollment.

An uncomfortable question naturally follows. What incentive does a college have to continue aggressively recruiting these students who procure little, or no, performance funding for the institution? While open-access community colleges may find it more difficult to restrict admissions than four-year institutions, it is not impossible. Reports from the Community College Research Center explain that the colleges can minimize recruitment efforts at area high schools with large numbers of disadvantaged students, and reduce the number of developmental education or adult basic education course offerings.

Such undesirable institutional behaviors may be more of an impending threat than a reality at present. However, this could quickly change for cash-strapped institutions if larger proportions of state funding in Texas become tied to student outcomes, which seems likely given trends in other states. In addition, if community colleges go underfunded as a result of PBF, it could create a vicious cycle where fewer institutional resources are available to help disadvantaged students graduate, thus leaving behind more and more of the students that depend on community colleges the most.

Community college leaders could find themselves in a very untenable situation as a result of PBF. A few facts to consider:

  • they are dependent upon state funding,
  • open access may bring negative financial consequences, and
  • the historical role of the community college as a pathway to postsecondary education for those who may not achieve the milestones promoted by the funding model may be at risk.

We acknowledge that a well-designed and thoughtful PBF formula has the potential to encourage positive changes. However, our study adds to a growing body of empirical research that can serve as a cautionary tale for policymakers and urge them to carefully consider the unintended consequences of PBF.

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