What’s Wrong with Performance Based Funding?

This is a post by Rudy Fichtenbaum, President of the AAUP.


The Chronicle of Higher Education just had an article about performance based funding in Florida. Performance based funding has been adopted in 30 states in one form or another and provides funding to universities and colleges if they meet certain metrics.

Performance based funding is being pushed by both the Lumina Foundation and the Gates Foundation. President Obama has called for performance based funding as part of his free community college initiative. The problem is that there is no evidence that performance based funding works.

In Florida, one of the ten metrics used to distribute performance based funding is the average wages of graduates employed in Florida. Make a $1 million but you are not employed in Florida and you don’t count. If the institution can’t find someone, they don’t count.

Each metric is scored on a 1 to 5 scale and if a school receives a score of 25 or less or if it is in the bottom 3 it receives no performance based funding.  Florida has eleven institutions and the way the policy is written even if they all get scores above 25, the lowest three schools are cut out of receiving any performance based funding.

Last year, according to the article in the Chronicle, Florida State just barely scored high enough to qualify for $16.7 million in new money. Even with this new money, Florida State is still receiving $133.3 million less from the state than it received in 2006. The article also reported that if the average graduate had earned just $400 less Florida State would not have received any performance based funding.

So what’s wrong with performance based funding?

First, there is no evidence that it actually works to increase graduation or retention rates.  For example, a study done evaluating performance based funding in the state of Washington showed that there was no increase in graduation rates or retention. In fact, the only positive outcome reported in the study was that certificates issued by community colleges increased, although the report notes that these certificates are of dubious value.

Second, just increasing graduation or retention rates does not mean that students are getting a better education. One way of raising graduation and retention rates is to admit students with higher SAT or ACT scores. Since these scores are highly correlated with family income this amounts to admitting more students from higher income families. The education that these students receive might be the same but students from higher income families are more likely to graduate because they work fewer hours as students and have other advantages that help them succeed.

Of course another way of increasing graduation rates and retention is to lower standards. Pressuring faculty to award higher grades by making exams easier or grading assignments less stringently can increase graduation rates and improve retention. Considering the fact that 70% of faculty are teaching on contingent contracts and are always just one semester away from not being renewed, a euphemism for being fired, this type of pressure can be very real.

Finally, tying funding the income that students earn when they graduate will lead colleges and universities to channel students in to majors where graduates earn higher incomes. Want to raise the average income of your graduates, cut back on the number of people who major in the humanities and increase the number who graduate in engineering or business. In other words, all you need to do is change the mix of students and offer the same quality of education as before but graduation rates and retention will improve.

The bottom line is that faced with performance based funding, schools will learn to game the system to try and maximize their funding and in the course of doing so continue the race to the bottom with respect to quality. Another outcome is that opportunities for poor students and students of color will diminish, because accepting disadvantaged students will lower a school’s score and lead to less funding.


2 thoughts on “What’s Wrong with Performance Based Funding?

  1. I’d add one other point, though it is less directly rooted in incentives and outcomes. PBF represents a bizarre, adversarial relationship between the state and its own universities. If a university that the state itself established to serve its own citizens is not up to par, demand clear action plans, personnel changes, institutional changes and so forth. Or close the campus.

    Holding base funds captive and inconsistent from one year to the next is counterproductive (as you describe above), and it directly contradicts the state’s own original commitment. Imagine marrying someone and then, years later, demanding performance improvements under threat of receiving fewer goods from the partner that you both agreed would work while the other would raise the kids. That is both immoral and self-defeating. And grounds for divorce.

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