Outcomes-Based Funding

Overview

Outcomes-Based Funding

Outcomes-based funding is one strategy some states are using or considering to increase completion. Essential Elements of State Policy for College Completion: Outcomes-Based Funding details practices in states across the country, examines questions policy-makers need to answer as they explore the strategy, and presents eight “essential elements” for an effective statewide outcomes-based funding policy.

General information

Essential Elements of State Policy for College Completion

  1. State Commitment: A clear and concrete commitment to increase the percentage of adults who hold postsecondary degrees or certificates — articulated in a formal, specific legislative or statewide board policy — is the necessary foundation. Success depends on key policy and education leaders embracing the commitment.
  2. Source of Funding: Policy-makers must clearly identify the source of money for outcomes-based funding. Since it is unlikely that new state funds will be available in the near future, policy-makers need to look at existing allocations. Funding from tuition emphasizes enrollment over completion, so the state must strategically balance the proportion of state money awarded for completion with the proportion of funding an institution receives from tuition.
  3. Level of Funding: The size of the outcomes-based funding pool needs to be significant enough to influence institutions’ actions — at least 25 percent as a percentage of state appropriations (not including tuition proceeds). Key factors to consider: 
    • Enable smooth transition. Most states have elected to phase in new formulas over a few years so institutions can adjust. 
    • Recognize that greater access should still be a goal in postsecondary education. To meet ambitious completion goals, states need to foster both higher enrollment and more successful completion. 
    • Mitigate negative effects on quality. The higher the share of funding that is outcomes-based, the more concern that administrators and faculty may feel pressure to relax standards to reach completion goals. 
  4. Agreement on Goals: Policy-makers need consensus on policies that will target state needs. The state’s master plan for postsecondary education should reflect the goals and objectives for outcomes-based funding.
  5. Differentiation by Mission: The funding model should allow ways for each kind of institution to earn outcomes-based funding within its mission, without pushing all institutions into the same actions. A state may use funding pools for each kind of institution or a different formula for community colleges, research universities, and regional institutions.
  6. Limited Number of Straightforward Outcomes: For transparency, simplicity and focus, policy should limit the outcomes it rewards and monitors. Funding should reward an increase in credentials awarded, or a higher proportion of a state’s total credentials from the particular institution, but not a higher graduation rate.
  7. Intermediate Momentum Points: Rewarding short-term momentum or milestones is effective in transitioning and encouraging institutions to achieve specific results. Policy-makers should give more weight to degree completion by at-risk students, those from low-income backgrounds, returning students, and transfers from two- to four-year institutions. Some states reward certain levels of credits as momentum points or encourage workforce priorities in STEM or other fields.
  8. Unambiguous Metrics: Targeted, easy-to-understand metrics are essential to avoid manipulation and uncertainty and to monitor progress. Reporting protocols should be in place before funding is awarded. Policy should emphasize positive change or improvement over absolute goals. For example, states might award funding for additional degrees and increases in the proportion of the state’s total credentials awarded by a particular institution.

Essential Elements of State Policy for College Completion: Outcomes-Based Funding is one in SREB’s series on state policy to increase college completion. The initiative is funded by grants from the Bill & Melinda Gates Foundation and Lumina Foundation.

Publication

Essential Elements of State Policy for College Completion:
Outcomes-Based Funding

Outcomes-based funding awards dollars to public colleges in part based on meeting goals, rather than on enrollment only, and is one strategy states are considering to increase postsecondary completion. Essential Elements of State Policy for College Completion: Outcomes-Based Funding details practices in states across the country, examines the questions policy-makers need to answer if they explore this strategy, and presents SREB’s recommendations for eight essential elements of an effective statewide outcomes-based funding policy aimed at improving completion.