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Performance-Based Funding for Higher Education

February 28, 2022
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WRITTEN BY Dr. Brittany Whitley and Dr. Alan Moss

Executive Summary 

Funding for higher education in Missouri, when adjusted for inflation, has decreased over the past decade. In light of lower funding levels, there have been calls to distribute the state’s limited higher education funds more responsibly. Performance-based funding is meant to provide financial incentives for institutions to grant degrees and improve on-time graduation rates. HB 2602 and SB 1077 would create performance-funding formulas for each university and two-year college funded by the state. 

Highlights 

  • A majority of empirical studies demonstrate that performance-based funding is not associated with significant improvements in the outcomes being measured. 
    • States that allocate larger portions of higher education funding based on performance are most likely to see shifts in the number and type of credentials awarded, such as increased short-term certificate completion and decreased associate degree completion.
  • Common institutional responses to performance-based funding policies include increasing selectivity in admissions, lowering standards for degree completion, and improving institutional student support systems.
  • Performance-based funding may disproportionately benefit larger, high-resource institutions. In the absence of equity incentives, these funding models are also associated with reduced higher education enrollment for underrepresented students.

Limitations 

  • Funding incentives are not the only factor that contributes to student enrollment, retention, and degree completion. Achievement gaps due to prior academic preparation, family circumstances, financial security, and student motivation have also been associated with postsecondary student outcomes.
  • Additional research is needed to understand what funding incentives are most effective to increase postsecondary enrollment and completion for traditionally underserved students.

 

This Note has been updated. You can access the previous version (published October 2020) here.

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